Understanding Alternatives To Filing Bankruptcy
There are several alternatives to filing for bankruptcy if you are facing overwhelming small business debt. Depending on your specific situation, some of these options may be more helpful than filing business bankruptcy. Our experts at ZocLaw.com discuss a few alternate debt relief strategies available for small business owners.
Don’t Take Any Action
Perhaps one of the easiest alternatives to filing bankruptcy is not to do anything. This is also the riskiest alternative to bankruptcy. However, it is also the riskiest. Creditor will sue you and obtain a judgment to go after the business assets. In some cases, creditors may realize that the costs of litigation is not worth it. Although they may send a few threatening demand letters, they may not additional legal action. Fortunately, if your business owns very little or no assets and you are not personally liable for its debts, this option may work out for you.
Shutting down the business
If you decide to close the business, you will be required to liquidate its assets and negotiate debt settlements with your creditors.
If you sell the assets of the business yourself, there is a greater likelihood you can obtain a better price for them than a bankruptcy trustee. Consequently, the sale of the assets may generate more funds to pay off creditors. Since you get to keep the excess proceeds after paying off creditors, this can work out really well if your business has a substantial amount of assets.
When selling business assets, separate the secured or leased ones from the rest because you require creditor approval before you can put those up for sale. After identifying all assets, based on the type of asset, use the most effective sales approach possible. Since it is your responsibility to minimize loss to creditors do not give away or sell the assets below fair market value
Settling Debt with Creditors
Liquidating the business gives you the opportunity to settle the debts most important to you, particularly those debts you are personally liable for first. In addition, most creditors prefer negotiating a settlement for less than the full balance of the debt because litigation is costly and they don’t want to push you into bankruptcy where they may receive even less compensation. Selling the Business
Selling your business may be more advantageous than liquidating it if you are able to find a willing buyer. Typically, the sale of an active Selling an active, functioning business will usually generate more than liquidating its assets individually. In addition, dealing with a single buyer is simpler than selling all assets separately.
Selling your business can be an effective way to pay off all business debts. Alternatively, you can opt to let the buyer take over responsibility for some or all debts of the business when ownership is transferred. However, if your business’s debts exceed its assets you may not be able to find anyone willing to purchase the business.
Special Note if You Are Personally Responsible for Business Debts
If you are personally liable for any of the business debt, you must pay it off or have the creditor release you from liability. If not, the creditor may go after your personal assets if the business assets do not satisfy the debt. By not addressing the deb you risk the creditor suing you and obtaining a judgment in your personal capacity. Make sure to settle and pay off the debts you are liable for prior to liquidation. If you selling your business is the best option for you, consider asking for at the very least sufficient money to pay off these debts because even if the buyer assumes the debt you are still responsible if it is not paid.