Bankruptcy and Business Continuity

  • Bankruptcy and business

Bankruptcy and Business Continuity

The common illusion about bankruptcy is that a business might have to wrap up after bankruptcy or business will not be able to continue after bankruptcy. However, this might not be true in most scenarios. There are different sections under which bankruptcy could be filed, these maybe Chapter 7 or 11 or 13. The company structure, business activity, assets and the fixed or probable income available to fund a repayment schedule can help in determining the right section to file bankruptcy.

Factors of consideration for business continuity

  • Is the business really making money?

Not every startup idea is a great venture, if your business is resulting in losses for a consistent period of time, you might want to reconsider if winding up is a better option. If nothing is going as per planned and this is for a longer period than you predicted, then it is time to wrap up the business. However, if the business did yield significant profits previously and this is just a bad phase due to temporary internal or external factors, it is worthwhile to consider letting the business flow until the external or internal factors are resolved.

  • Assets and liabilities balance

The balance between assets and liabilities determines the sustainability of a business in the long run. If your calculation of assets is larger than liabilities, then it can be interpreted as a bad phase in business and removing the plug might not be the right option. On the other hand, if the liabilities exceed considerably over the assets, it is time to pull the plug. Instead of retaining such a business one can prefer starting a new one altogether, as growing liabilities, only create a bigger pothole that keeps sucking all potential assets and growth opportunities.

  • Personal liability for business debts?

Personal liability on business debts can be a case with proprietary businesses or partnerships. The lenders might have access to personal assets for business debts. If there is potential to revive the business without seeking additional debts and buying time from lenders, that is the best option. However, if that seems to be difficult and if you already have your back to the wall, bankruptcy and business wrap up could be the only choice available.

Chapters under which business bankruptcy can be filed-

  • Chapter 7

Chapter 7 bankruptcy Los Angeles is usually used by proper companies and businesses who are looking to wind up their business. There usually isn’t any exemption to prevent sale or liquidation of any company asset during business bankruptcy under Chapter 7 and hence, all the assets are usually liquidated for an equal share amongst the lenders. In a straightforward liquidation case, with minimum argument or dispute regarding creditor’s share, the liquidation can be settled outside court as it saves a lot of effort, cost and time.

However, in the case of complex debt arrangements and lender disputes, there is no choice but to opt for a legal procedure. This chapter is certainly not recommended for partnership or sole proprietors as their personal properties to the extent of secured debts could be attached for repayment. This can be prevented by the use of other chapters.

  • Chapter 13

Chapter 13 is only for individuals so only sole proprietors qualify for this chapter. The process of qualifying for Chapter 13 or Chapter 7 also for that matter becomes a lot easier with business debts. This is the best alternative for the sole proprietors who wish to keep their business running and do not want to give up on any business or personal assets. By filing affordable Chapter 13 bankruptcy Los Angeles, you might discharge part of your unsecured debts and also maintain your business assets. As per stats, sole proprietors filing Chapter 13 may end up losing some of their business assets as they are short on cash and it isn’t the most feasible thing to carry around so much debt for 4-5 years of the repayment plan. That is another thought to be considered when filing for Chapter 13 as not all of your assets will be safe.

  • Chapter 11

The partnerships, Limited Liability Corporations, general Corporations, etc., usually opt for Chapter 11 bankruptcy. The concept of Chapter 11 is based on Chapter 13. It emphasizes on a restructuring of debt with a feasible repayment plan that helps in business continuity. Being based on Chapter 13, Chapter 11 is not that straightforward as Chapter 13. It can get complicated and it is strictly recommended for use of an attorney specifically for Chapter 11. The prospective payment plan has to be feasible, practical and needs to be approved by all creditors on board. Apart from the complicated procedure, the overall expense is a lot higher and not recommended for small businesses. Reach out to 888-297-6203 for more intriguing facts and options in business bankruptcy.