As much as business owners would like to think otherwise, there may come a time when demand for their product or service declines, they overextend their credit to cover overhead, or simply fall victim to economic realities entirely beyond their control.
Indeed, there may even come a time for business owners when their best efforts simply aren’t enough to get them out of red and, as a result, they must begin considering their options as they relate to bankruptcy.
While this can undoubtedly be a highly unnerving prospect, the reality is that filing for bankruptcy may actually prove to be beneficial in the long wrong, providing a fresh start for the business owner and perhaps even the business.
In recognition of this reality, today’s post will take a brief look at two types of bankruptcy that business owners might not realize are available as options outside of Chapter 11.
In a Chapter 7 business bankruptcy, a trustee will be appointed to sell the assets of the business and apply the proceeds derived toward any outstanding debts — with any remaining debts being discharged.
While the Chapter 7 filing will result in the termination of the business, experts indicate that business owners may still be able to buy back some of their assets provided that they are not purchased when put up for sale and the trustee does not object. Indeed, it’s for this reason, and its reasonable cost, that many sole proprietors and small business owners decide to go with this form of bankruptcy.
Experts indicate that Chapter 13 bankruptcy, which involves a debtor securing a discharge from their debts after completion of a court-ordered three- to five-year repayment plan, is ideal for sole proprietors, or those who neglected to form a specific business entity, but are the undisputed sole owners of the enterprise and its debts.
That’s because people in these scenarios often have their business assets commingled with their personal assets, such that both are equally at risk of being lost. What makes Chapter 13 bankruptcy so effective, however, is that it can help protect against the potential loss of personal assets, including the home.
If you are a financially distressed business owner who would like to learn more about your options as they relate to bankruptcy, consider speaking with an experienced legal professional to learn more about your rights and your options.