Veronica Ferguson, Negosentro | When starting a business, every business owner is hopeful that their venture will become profitable and last long enough so that they’ll be able to pass it on to future generations. A form of legacy and pride manifested as a business, that is. However, life is unpredictable and sometimes, the things we want will not always go the way we plan them to and sometimes, we are forced to face a difficult situation, such as filing for bankruptcy.
No matter how unpleasing this situation might be, it must still be faced. However, before you come to a conclusion or a final verdict, it is advisable that you should consider some factors before you look into business bankruptcy.
Know the different types of bankruptcy
Luckily for everyone who may ever find themselves in this type of situation, there are three types of business bankruptcy which may or may not save your business—well, it’s better than not having the chance to save it at all. Here they are:
- Business Bankruptcy (Chapter 7)
The end of it all—this is the best way to describe this type of bankruptcy. This is the only choice for a business when it no longer has the possibility of ever having a future to grow or flourish especially when the liabilities and debts of the business are so overwhelming that the assets alone cannot compensate enough for them, or it has no any form of assets at all. The process of liquidation then has to take over and the bankruptcy court will assign a trustee to take over the assets of the business and distribute them accordingly to the creditors. After the process is done, the proprietor shall be “discharged”—which means the proprietor is now free from any obligations of having to pay any of the debts. However, this does not apply to the other types of bankruptcy such as partnership and corporations.
- Business Reorganization ( Chapter 11)
Chapter 11, or also called as Business Reorganization, is the type of bankruptcy that is designed for a business which still has the chance for redemption from the crisis itself. The process involves the need for the bankruptcy court to appoint a trustee and the owner of the company can actually be a candidate for this. The company then will have to file a reorganization plan on how it will settle the debt to its creditors. The creditors will then deliberate on the plan and vote on it. If somehow the court finds the plan to be fair for all, an approval shall be made. The process of reorganization then starts and the creditors shall be paid over a period of time (some exceeding 20 years).
While this seems like an easy solution and an ideal one, not all cases actually succeed, and the process of developing and approving the plan sometimes takes up to more than a year before it becomes finalized.
- Personal Bankruptcy (Chapter 13)
Chapter 13 is the type of bankruptcy catered specifically for the consumers and sole proprietors. It involves the need for one to file a repayment plan including how the business plans to repay their debts to the creditors, and the amount will depend on annual income, the amount of the death, and the worth of the assets and properties. The repayment plan for Chapter 13 usually lasts for a minimum of three years and a maximum of five years only.
Consult a lawyer
Before you head on to choose a life-defining situation, a consultation with a lawyer will definitely help you establish what you need to get out of the situation and to resolve any other issues involved. Not only will a great lawyer guide you through the whole legal proceedings, but they’ll also make sure that you have the security that you need.
While you’re looking into bankruptcy for your business, it’s best to also consider the possibility of declaring personal bankruptcy. To gain an in-depth understanding on the legal implications of this subject, you may click here.
Veronica Ferguson is equipped with more than 20 years of experience as a businesswoman. She is currently writing her next big project and hopes her pieces would impart vital knowledge to her readers. Veronica is a family woman, and is often with her family during her free time.