When Should a Small Business File for Bankruptcy?
It is quite natural for small business owners to feel distressed and to potentially be unsure of what steps they should take when their business starts to experience a downturn. The early signs of a struggle in your business may not be an indication of failure but there are many business owners that hold on to long without reorganizing their financial obligations. Proper protection for the future of your company and your personal finances is important. So when should a small business file for bankruptcy?
A small business owner needs to consider the option for bankruptcy as soon as they start to notice that their business is struggling. Rather than continuing to risk their own finances or sinking the company further into debt, bankruptcy can often be a viable option to protect any remaining assets, discharge debt, and work at creating a new start for future business operations.
If you find yourself in a position where it’s going to be difficult for you to pay off your debts and keep your business afloat, instead of taking out a new loan against your business and finding yourself deeper into debt it could be a wise idea to contact a bankruptcy attorney and determine the best option for your future.
Deciding On Filing Between Chapter 11 and Chapter 7
Chapter 7 and Chapter 11 have their differences with bankruptcy and with a chapter 7 bankruptcy will be dissolving your business in a permanent fashion. Under Chapter 11 you’ll be able to keep the business operating after the bankruptcy.
Chapter 7 is often the best option for your business if you don’t think that you can continue and if there’s no way forward that makes financial sense. If your product becomes completely obsolete, there’s an economic downturn that renders your business undesirable, or the nature of your business costs have changed dramatically, it could be wise for you to consider filing for Chapter 7. If you don’t feel as though conditions will ever improve with your business, a complete liquidation and distribution of your company’s assets may be the best way to protect your future finances.
Under a Chapter 11 bankruptcy, you will be submitting a reorganization plan that will eliminate your company debt and put you on a roadmap for your business to continue operating in the future. Often, this will involve an ongoing repayment plan for your business so that you can satisfy your creditors while continuing your ongoing business operations.
There Are Some New Options for Business Bankruptcies
With Covid-19, there are a number of small businesses that have had to turn to bankruptcy in order to manage their finances. Around 40% of small businesses are expected to go to business or drastically reduce their incoming revenue. The small business restructuring act was passed in February of 2020 and it offers a new option for a restructuring process with bankruptcy. Filing for chapter 11 bankruptcy can be an expensive process and it often takes a lot of time. Under the new mandate, you are able to streamline the process and make sure that your business can appropriately restructure and comply with any of the terms imposed on your small business through the loans you took out. Your business will be able to stay in operation and you can establish a repayment plan on your most pertinent loans.
If your business is in a position where it’s suffering you should consider contacting our attorneys today. We can help you through this trying time and discuss the options that are available to you. Our team is heavily experienced in bankruptcy law and we want to help you access the best advice for your financial future and the financial future of your business. Contact us now for expert advice in business bankruptcy.