Every business goes through its ups and downs. Most times you can recover, but sometimes you can’t. There can come a time when you can no longer meet your monthly obligations and you have no other way out, so the worst case scenario of filing for bankruptcy is something you must consider.
If you are a business owner, you have three possible bankruptcy options, each with its own set of pros and cons.
Chapter 7 is considered a liquidation bankruptcy in which some or all of the business assets are sold to satisfy debts. However, a few years ago, the Bankruptcy Abuse Protection Act was passed, making it more difficult for business owners to file Chapter 7, and instead, encouraging them to file Chapter 13 bankruptcy. However, if you’re a sole proprietor and some of your business debts are also personal debts, you are still eligible for Chapter 7. Most of the time, a business owner will choose this option when they believe there’s no chance that the business will survive.
After you file a petition in court that includes all of your creditors, a bankruptcy trustee will be appointed, and your business assets will be sold off to pay the outstanding debts. Once the proceeds are gone, the remaining debts will be discharged and the business will be closed.
Chapter 11 bankruptcy allows a business to keep operating while under a reorganization plan. A trustee will be appointed who will reorganize your business and oversee operations until outstanding debts are paid off.
Typically reserved for individuals or couples, Chapter 13 can also be applied to businesses with a sole proprietor or other unincorporated entities. Under this form of bankruptcy, you submit a plan to the court that outlines how you will repay your debts. Generally, this involves a three to five year timeframe. This form of bankruptcy allows a business to keep their assets so that they can continue to operate and generate enough income to satisfy the repayment plan. The other thing is this type of bankruptcy does is hold creditors at bay, meaning that they won’t be allowed to begin or continue to try and collect from a business owner during the repayment timeframe.
The Hixson Law Firm serves clients in Mansfield, Arlington, Grand Prairie and other nearby Texas communities.