Company Bankruptcy Filing

If your small business is facing overwhelming debt and your business is in trouble, there are bankruptcy options for you and your small business.

If your business is a corporation, limited liability or partnership, you can file Chapter 7 or Chapter 11. These types of business are legal entities that are separate from their shareholders or partners.

If your business is a proprietorship, your business is basically an extenstion of you, the owner. You cannot file bankruptcy "alone", as assets and debts of the proprietorship are actually YOUR assets and liabilities as the proprietor. You, as the individual owner, can file Chapter 7, Chapter 11 or possibly Chapter 13.

For a small business, Chapter 11, a reorganization, takes a huge amount of work of everyone involved with the business, as well as legal counsel, working with the bankruptcy courts, and dealing with your creditors. You have to be prepared for a great deal of negotiation, energy and time. A full and thorough accounting of your assets and liabilties is disclosed to the bankruptcy court and creditors, and this financial reporting is continued throughout the process. However, with this process, your business comes under the automatic stay, which can give you, the time and room to continue to do business without having to be dealing personally with your creditors.

Unfortunately, few small business emerge from Chapter 11. This process becomes overwhelming, the time that it takes to deal with the bankruptcy AND the daily business matters is simply too daunting. Even with legal counsel and best intentions, it is often just too complicated to draft a plan that not only addresses the debt of the company, but also how they will come out of this "meaner and leaner" and able to do business in what can be a struggling business niche to begin with.

The reality is that for many small businesses, Chapter 7, or liquidation, is the best solution. If the business niche is oversaturated, or a niche that is struggling, it may not be viable for a business to continue in that business environment. Your small business may simply not have assets or a special qualiity that can keep your business viable, such as a strategic advantage, or intellectual properties that will make the business viable for the long run. Finally, many small businesses simply have too much debt and too few assets and a restructuring is simply not possible.

In Chapter 7, corporations don’t get the same kind of discharge as an individual does. Instead, in Chapter 7, the business liquidates the assets with the direction of the trustee that is appointed. Creditors are paid depending upon the liquidated cash amount of the assets and where they stand in line. Some creditors may be "secured" in that they extended the credit based off of tangible assets (which are now being liquidated).

Because corporations don’t get the discharge, and "fresh start" if you will, why not just cease operations, sell off what you can and let the state just end the corporate existence? Aside from the ethics of such a decision, there are legal issues that make it a better choice to still go through the Chapter 7 process. You may have creditors that can lien or levy assets for which you are personally liable and have personally guaranteed. Even if you are not legally liable for the debt, your creditors can sue you, and make for a very expensive court battle, also tying up your time in attempting to obtain a new job or launch a new company.

These decision are complex and difficult at best. There are many emotional components to the bankruptcy question as well, as a small business owner, it is devastating to think of your hard work, your sweat equity and your dream being dismantled, sold off and ending in a manner that you never wanted to imagine. There are ethics involved, and many small business owners do not want to think of how it will be seen and handled by fellow business owners, business connections and the community at large. A small business owner can feel like a failure, and this time can be incredibly stressful, impacting their life in a variety of ways.

This brief explanation of how a small business can be impacted by bankruptcy is just that, a brief recap. This does not constitute legal advice. There are far more complex issues and considerations beyond these few paragraphs that you will need to consider and potentially face should you file for bankruptcy.

However, there are small business bankruptcy attorneys that can make this process far easier for you, can assist you in getting the bankruptcy done quickly and efficiently so that you can move on, and can make sure that you are legally covered to the best extent possible. A bankruptcy attorney will make sure that your best interest in considered at every step, and that you make the right decisions for you and your business.