Small businesses struggle with finances more often than many people believe. Often, business owners consider filing for bankruptcy in the first few years of opening up. Bankruptcy is a serious ordeal that may involve reorganization or liquidation of assets. It all depends on which type of commercial bankruptcy you are considering.
So, what are the three different types of bankruptcy? These are the common ways in which you may choose to file for bankruptcy.
Chapter 13 Bankruptcy
People and sole proprietorships can file for Chapter 13 bankruptcy, which is an adjustment of debt for people who have regular income. You can use Chapter 13 as a small business when you do not want to liquidate, but rather reorganize. You can also establish a repayment plan as part of the bankruptcy hearing, which helps you repay your debts over time. You will notice that this type of bankruptcy varies from Chapter 7 in one significant way: Chapter 13 allows the proprietorship to stay in business.
You might now have questions about what you must repay. This is based on how much money you earn, how much money you owe, and how many assets you currently own.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is all about liquidation. When your business does not have a future, you might want to liquidate your assets. This allows you to avoid overwhelming debt when repayment and restructuring is not a possibility, or when you lack assets. Whether you are a sole proprietorship, partnership, or corporation, you can benefit from this option.
Not everybody is approved for Chapter 7 bankruptcy. If you have an income that is over a specific level, you may not be eligible. You should also understand that you will be appointed a trustee to manage the possession of business assets.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is all about business reorganization. If you have the option to really turn your financial situation around, Chapter 11 is a great option. It is also a solid choice if you are unable to qualify for another form of bankruptcy. This plan reorganizes your business and assigns a trustee to your business. You will deal with creditors in different ways dependent on how much you owe and if they are able to terminate contracts and recover assets.
Commercial bankruptcy is a serious matter, and it is important that you understand the process thoroughly. Make sure you speak with a professional, like those at Molleur Law Office, before moving forward with the process.