Whether you are a small business owner who is going to shutter the business or who wants to keep it alive, bankruptcy can be a helpful option. Your choice to keep the business going or not, as well as the type of business you run, will influence which type of bankruptcy is right for you, whether this is Chapter 7, 11, or 13. Keep reading to learn more about how these different types of bankruptcy can affect a small business.

Business Considerations

First, you have to look at your business and your personal finances. Has your business ever made a profit? If you are simply running through a dry spell, then it may be worth it still in the long run to keep your business going until the economy improves. But if your business has always been in the red, then it may be best to end the business. You also have to consider the assets in your business as opposed to its liabilities. If you are left with more liabilities, then you it may not be worth it to continue. If your business still has a greater number of assets than liabilities, however, you may want to stay in business. Finally, do you have personal liability for your business debt? If so, then you have an added motivation to stay in business while avoiding debt; this could at least let you negotiate with your creditors. Otherwise, if you shut down your business right away, your creditors might seek to liquidate your personal property to satisfy debt.

Chapter 7 Bankruptcy and Your Small Business

This is basically only an option if you are the sole proprietor of the business. If this is your case, then this type of bankruptcy will take care of your personal debts and your business debts at once; you can even employ exemptions to keep your business assets from being liquidated. Also, if you have next to no assets, Chapter 7 can allow you to get your debt eliminated and to stay in business.

Now if you have assets that cannot be protected through exemptions, then these could get liquidated, which could make this bankruptcy simply not worth it. Also, if you are not the sole proprietor, if your business is a partnership, corporation, limited liability company, etc., then Chapter 7 will not allow you to keep the business going. With these businesses, nothing is exempt in Chapter 7 bankruptcy. Your assets will be sold off.

If you have decided to close shop, however, then Chapter 7 is probably the way to go. It is pretty simple. The business gets no discharge, and everything gets liquidated to pay off creditors. The trustee does everything, but you get nothing. You may want to consider whether you could sell off the assets and negotiate with creditors on your own.

Keeping Your Business with Chapter 13 Bankruptcy

Again, only an individual can file for this bankruptcy. Partnerships, corporations, and LLCs cannot undergo Chapter 13 bankruptcy. But if you are the sole proprietor of your business, you can take care of both business and personal debt with Chapter 13. This can be an especially appealing choice if you are the sole proprietor, and you have a good deal of non-exempt assets. As Chapter 7 is liquidation bankruptcy, you could lose all of those assets. On the other hand, Chapter 13 bankruptcy is reorganization bankruptcy. You are able to keep all your assets, and your debt repayment is restructured so that you are able to make your payments. In the meantime, business continues as usual.

Chapter 11 Bankruptcy for Small Businesses

This is the bankruptcy that has to be filed for by partnerships, corporations, and LLCs. While such companies cannot file for Chapter 13 bankruptcy, this bankruptcy is rather similar. It is a reorganization debt; it is just not as straightforward a process as Chapter 13. With Chapter 11 bankruptcy, the company will have to churn out ongoing operating reports, and the repayment plan has to get approval from the company's creditors.

Whatever type of bankruptcy you choose to get you and your business to financial solvency, the process will be complex, as will its consequences. Even deciding which type of bankruptcy is right for you can be difficult in some situations. Before you take such a huge personal and financial step, you will need the legal expertise of a skilled bankruptcy attorney. You can start looking on our directory for the legal representative that you need today!