No business owner wants to file for bankruptcy. If you have to engage in this process, however, there are some critical pieces of information that you should know. Understand that in the right cases, bankruptcy can be invaluable. An experienced business bankruptcy lawyer can help you determine whether bankruptcy is the best option for your business. The following are some key questions to ask if you are a small business owner considering filing for bankruptcy.
Are There Different Types of Bankruptcy?
Bankruptcy refers to a federal legal process that allows individuals and businesses to erase debt or restructure based on the surrounding financial circumstances and the type of bankruptcy that is filed. There are three common types of bankruptcy filings including Chapter 7, Chapter 11, and Chapter 13. Chapter 7 wipes out all unsecured debt, which includes things like credit cards. For business without a lot of debt and not much income, Chapter 7 can be the best possible option. For businesses, Chapter 7 is also referred to as liquidation because a bankruptcy trustee closes the business and liquidates the business’s assets to pay as many debts as possible. Chapter 13 is a bankruptcy option for people who cannot file Chapter 7. This type of bankruptcy involves a restructuring plan wherein only part of a debt is repaid over a several-year period. Chapter 11 is referred to as reorganization and utilized for corporations.
What is the Best Bankruptcy Option for You?
If your business has not yet incorporated, you are personally liable for all of the business’ debts. As a result, it is often best in these situations to file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is often a wise choice for sole proprietors and freelancers who are underwater and whose businesses are not separate from the individual. Chapter 13 is a good option for corporations that generate income but are not making enough to cover their expenses. In Chapter 13, the business and its creditors agree on a plan for reorganization and repayment.
How Much Property Will You Lose by Filing for Bankruptcy
Bankruptcy might be governed by federal law, but each state has its own laws of “exemptions” that address how much property a person can retain during the process.
Do Business Owners Face Any Downsides to Filing for Bankruptcy
Many business owners are worried about the stigma associated with filing for bankruptcy. In reality, this stigma is much less impactful than it once was. Some of the challenges presented by the bankruptcy process are that you and the business will fall under the scrutiny of a trustee, the bankruptcy does not always erase all debts, and bankruptcy recordings that stay on a person’s credit report for 10 years.
How Much Does Bankruptcy Cost?
There are two primary costs involved with bankruptcy — the fee to file with the court and attorney fees. While Chapter 7 is often the least expensive type of bankruptcy to file, Chapter 11 is the most expensive type of bankruptcy. Your attorney can provide you with a better understanding of how much more the process will cost.
Can You Pursue Bankruptcy On Your Own?
When many people learn about the potential for attorney’s fees, they attempt to navigate matters on their own. In reality, there is too much at stake to not retain the assistance of an experienced bankruptcy lawyer. There are too many things that could go wrong if you make a mistake. Additionally, in most cases, it will be impossible to assess whether you made a mistake until it is far too late.
Other Critical Questions Small Business Owners Should Ask Before Filing
There are many varying reports about how well businesses will weather the long-term impact of the COVID-19 pandemic. Some people predict that many small businesses will simply not be able to survive this life-changing series of events. If you have begun to consider the bankruptcy process, there are some critical questions that you should ask yourself besides the issues that are already discussed. Some of the questions that you should consider before filing for any type of bankruptcy include:
How well the bankruptcy process is navigated and whether you do a good job at gathering all of the essential paperwork, bankruptcy can be a life-saving remedy for a failed business. If bankruptcy is not taken seriously enough and you fail to gather the required details, bankruptcy can be an unfortunate and ill-time process that can sometimes make your financial situation even more challenging. One of the best ways to make sure that your bankruptcy case resolves in the best possible manner is to retain the assistance of a competent, dedicated, and engaged lawyer.
Speak With a Knowledgeable Bankruptcy Lawyer
If you need the assistance of an experienced bankruptcy attorney, do not hesitate to contact The Law Offices of Melanie Tavare by calling (510) 255 – 4646.
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