As an individual, you may face a lot of financial issues, and you may think of filing for bankruptcy. You may have a lot of credit card debt also. However, when we talk of business owners it becomes very stressful to cater to financial hardships. For business owners, after a certain time, the line between personal and business finances gets mixed.
1) Common Types of Bankruptcy
There are three most common types of bankruptcy, chapter 7 Chapter 11, and chapter 13. Chapter 7 Bankruptcy can be used for both an individual and a business. In Chapter 7 your assets are used to pay off your debts, and the remaining of the debts are wiped off. Chapter 11 and chapter 13 are also both available for individuals as well as businesses. Both these bankruptcy types are often known as reorganization, as they allow their debtors with a regular income to set a new table or a new way for paying off their creditors. In Chapter 11 and chapter 13 bankruptcy, the Assets of the debtors are intact.
2) How is your business set up?
As a business, if you plan to apply for bankruptcy you also need to see how your business is set up. If you are a sole proprietor and the business is in your name, then there is no need to separate your assets and that of the business. Therefore, any assets that you own in the business or person could be used to pay off your creditors. In the other case, any income that is generated from the business can also be used to pay them off.
In case you and your business are a separate identity, that is your business operates under a separate entity such as LLC (limited liability company), LLP (limited liability partnership), or a corporation, the shares of your business are your assets.
In the case of a business whether there are partners, the bankruptcy Trustee who is there to help the creditors, can n become a substitute partner and force the liquidation of the business. Even if you are doing good financially, but your business isn’t you can opt for business bankruptcy. If you think that you want to liquidate your business, filing for a chapter 7 bankruptcy is the best option. Even if you think you do not have significant assets, or if your business is not going anywhere, or even if there are too many debts, repaying them is not possible, chapter 7 is the only thing that can help you. You also need to check if the lenders or the creditors have taken a personal guarantee from you or not. In such a case, even after filing for business bankruptcy, the creditors are permissible to take money from you for your business liabilities. Clauses of personal guarantees are common in many credit applications. A Chapter 11 may be appropriate if you have a sound business, but due to certain situations, or because of excessive debt, or bad contracts you may have to face liquidity. Corporate reorganization is not easy as it seems. It will require a lot of investment of time from the owners and the managers who have to work with the creditors and the attorneys. It can also be an expensive process. However, most reorganizations ultimately fail. Getting in touch with a good attorney who can help you through the process is very important. You can also contact Recovery Law Group from Los Angeles & Dallas, TX for the Same. Contact – (888-297-6203).