Can Filing Business Bankruptcy Help my Business Continue?

Find out if a business bankruptcy can help you keep your business afloat

Filing business bankruptcy can help you whether you want to shut your business or continue to operate. The type of bankruptcy can help you depending on the way your business is structured and if you want to stay operational. Learn more about factors to consider if you decide to continue your business and how a Chapter 7, Chapter 11 and Chapter 13 can help you.

Factors to consider when deciding to keep your business open

Several factors are to be considered when deciding to shut down or keep you business operational. Personal and financial factors have to be taken into account as well.

Is the business making a profit?

If your business is continuously losing money from the onset , it is advisable to shut down. However, if your business is profitable and is going through a temporary difficult patch due to external factors it is advisable to stay operational until it improves.

Business assets versus liabilities

Your business assets should exceed your liabilities in order to consider remaining operational. However, if it is the other way around, it may be advisable to look into shutting down the business. 

Personal liability

Depending on the structure of your business, you may be personally liable for your business debt. If this is the case , it is to your advantage that you  remain in business without accumulating more debt. Shutting down may force creditors to go after your personal assets if your business does not have enough assets to cover the debt.

Types of bankruptcy to consider if you want to continue your business

This depends on how your business is structured and the value of the assets that it owns.

Chapter 7 Bankruptcy if you decide to stay operational

If you are the sole proprietor of you business then a personal Chapter 7 bankruptcy can help you and allows you to use exemptions to protect assets of your business. This is a good option for sole proprietors who have little or no assets to clear their business debts or keep the business operational. If you have nonexempt assets the bankruptcy trustee will sell them to cover your business dept.If this is so, a Chapter 7 bankruptcy is not the best option.

When your business is a separate entity like a partnership, corporation or limited liability company you cannot file a chapter 7 bankruptcy if you want to remain operational.There are no exemptions in a business chapter 7 bankruptcy. The trustee will sell assets of the business to pay debt and the business will be shut down.

Chapter 13 Bankruptcy if you decide to stay operational

Individuals can only file for a Chapter 13 bankruptcy. Partnerships,corporations or limited liability companies cannot file for a Chapter 13 bankruptcy. A sole proprietor can include personal and business debts in a Chapter 13 bankruptcy. A Chapter 13 bankruptcy can be beneficial to a sole proprietor who has considerable amount of nonexempt assets. Chapter 13 bankruptcy is designed to retain all assets and streamline debt via a repayment plan and keep the business operational

Chapter 11 Bankruptcy if you decide to stay operational

Entities such as partnerships, corporations or limited liability companies need to file a Chapter 11 bankruptcy as opposed to a chapter 13 bankruptcy if they want to streamline or reorganize their debt and stay operational. Usually the repayment plan has to be approved by creditors and is complicated compared to chapter 13 bankruptcy. Regular reports have to be presented to monitor progress and compliance.

Chapter 7 Bankruptcy if you decide to shut down

Chapter 7 bankruptcy can provide an easy way to close your business. This is a liquidation bankruptcy usually used when shutting down a business. There are no exemptions and the business does not receive any discharges. Business assets are sold by the bankruptcy trustee and the proceeds are distributed among the creditors.The benefit of a Chapter 7 business bankruptcy is that the trustee does all the work. However, you  may be able to get a better price for your assets if you sell them yourself and deal with your creditors directly before filing business bankruptcy.

For those business owners who prefer not to file business bankruptcy or who are not eligible for bankruptcy, there are several business debt relief options available. Speak to our experienced business debt relief lawyers about: