Business Bankruptcy Advice and Your Small Business
If your business is still trying to get off the ground, but it looks as if you are not able to pay your current creditors, it may be necessary to seek bankruptcy protection. The type of bankruptcy you should seek depends a great deal on the amount you owe, plus the future prospects of your company. Here are a couple of choices to consider.
The first question your bankruptcy attorney will need to be answered is, “Is the business incorporated? LLC? Partnership/ Sole proprietorship? Of these, the sole proprietorship would probably be approached as personal bankruptcy, with a “dba” as the company name. Personal bankruptcy could be Chapter 7, 11 or 13. The other forms of business entities cannot file Chapter 13.
If the future looks bright for the business, but you have hit a hole in the road, file for Chapter 11 protection. With this type of bankruptcy, you would follow a court-approved repayment plan to eventually settle the debts that the company currently owes.
This is the best approach if you have solid reasons to believe that the company can build up a steady clientele and become a profitable venture. Keep in mind that with Chapter 11, it is always possible to pay off the balance due in advance, if your company’s performance exceeds your projections. Unlike a Chapter 13 for a consumer, it is the amount of repayment that is determined by the Chapter 11 plan, not the length of the plan. Chapter 11 cases are very complex and are the most costly to do.
If, on the other hand, the company’s future looks dim or worse, file for Chapter 7 protection. This is the best approach if you believe your company is not likely to find a market, and that there is very little chance of it ever becoming profitable. Under these circumstances, the idea is to settle the debts and be in a position to shut the company down for good. The Chapter 7 trustee liquidates the corporation’s assets and pays to the creditors the proceeds.
With either option, it is up to you and your attorney to provide the court with evidence that the type of business bankruptcy protection you seek is the most appropriate choice. If you have factual data that indicates your company can be successful if the courts approve the action and effectively buy the business time to begin turning a profit, make sure it is included along with the petition. At the same time, if you honestly feel the business is never going to succeed, be prepared to explain to the court why you think that is the case.
These issues are complicated. Don’t try to figure this out on your own. And remember that if your business is incorporated, it cannot proceed with business bankruptcy without being represented by an attorney.
So… What is going to be your next step?
Pick up the phone and give us a call. Paul knows that calling about filing bankruptcy is hard. No one really wants to. When you call, you will get an appointment time that is convenient for you to meet with Paul. Paul thoroughly believes his clients deserve to have answers.