If your small business is struggling financially and you are considering filing for bankruptcy, there are several options that you may want to consider. There are a few types of bankruptcy that may be beneficial to small business owners. However, the type of bankruptcy commonly referred to as “business bankruptcy” may not be the best option for small businesses. Many business owners who are sole proprietors often choose to file a personal bankruptcy and add their business debts in the filing.
The way that you structure your small business is critical in determining how your bankruptcy filing will proceed. The structure of your small business will also determine the different types of bankruptcy you may be eligible for. For example, if you operate your business as a sole proprietorship, then you and your business will be considered one and the same. This means that a small business bankruptcy may end up negatively impacting any personal assets you may have as well as your business assets. The bankruptcy may also damage your personal credit history.
Keeping this in mind, there are several options you can choose from when filing bankruptcy for your business.
Chapter 11 Bankruptcy
This is an option for businesses that are medium to large sized, or businesses that have a significant amount of debt. It is uncommon for small businesses to file for this type of bankruptcy. Larger corporations commonly file this type of bankruptcy. This type of bankruptcy is also known as reorganization bankruptcy. Filing Chapter 11 is complicated and expensive. Business owners should consult with an experienced bankruptcy attorney before filing.
Small Business Bankruptcy : Chapter 13
Small business owners typically choose Chapter 13 bankruptcy. The bankruptcy includes both you and the business. Business owners must be able to prove that they have sufficient income to repay some of the debt. Those who are classified as sole proprietors typically have to show paperwork verifying six months’ of income prior to the bankruptcy filing. The court may also want to see tax returns.
Chapter 7 is a bankruptcy option for small business owners who are unable to pay off any debts. If your business is facing bankruptcy, schedule an appointment with a bankruptcy attorney in your area. An attorney will help you determine which option is best for you.
North Georgia business owners who are facing bankruptcy can contact us for a free consultation.