Disclaimer: This article should not be treated as legal advice. It’s recommended that readers still consult legal counsel and contact a lawyer should they have any concerns regarding this topic
The market is an extremely dynamic and flexible variable to consider in any business, which is why it’s important to always be adaptable and flexible as a company in order to cope with the changes that happen to the market all the time. Unfortunately, not all businesses get to adapt to these trends fast enough, and some business may undergo changes that some would consider “the point of no return.” If bankruptcy is becoming an option for your business, don’t fret as here are some things on what to consider.
Do remember, however, that before you even sign your papers filing for business or personal bankruptcy that you should always review your case with your lawyer and your analysts. You might be looking at a temporary bump in your business, or a dive you can return from. While this guide can give you an idea on what to consider if you’re planning on filing bankruptcy, filing and not filing can work depending on your particular set of circumstances.
Here are things you should consider:
Remember: Bankruptcy Can Affect Things Outside Business
One of the most important things to consider before filing bankruptcy for your business is the extent of its effects on you and things outside your business. When we say our businesses affect our lives, it does so beyond a psychological spectrum.
- For instance, perhaps it might be time to file for bankruptcy if your business is starting to affect your personal assets. Of course, this type of risk can depend on the business structure you possess. For instance, if your business is a sole proprietorship, you own the business and are therefore liable for all the problems and mistakes surrounding the business.
- Bankruptcy can help you in this matter as it can protect you on a personal level while your business closes. This helps add a degree of certainty that you may not lose all your valuables just because the business didn’t work.
- Meanwhile, if you have an LLC or a limited liability corporation, then chances are you don’t need to file for bankruptcy in the first place. This is because the liability in this situation is really on the company itself, and personal assets can’t be touched by creditors.
Remember: Bankruptcy Has Different Forms
Perhaps one of the most essential things up for consideration when you’re looking into bankruptcy for your business is the kind of bankruptcy you’ll be filing for in the first place. One of the first things your lawyer may brief you in is the kind of bankruptcy available to take, especially depending on the kind of company you have.
For instance, there are generally three types of bankruptcy: Chapter 7, Chapter 11, or Chapter 13 bankruptcy.
- A Chapter 11 bankruptcy is typically filed by big corporations and businesses that are traded publicly. This can be extremely costly and may take a lot of time depending on the business in question. Some creditors wouldn’t want to consider this option, though if you have a high personal net worth, this can be an option for you.
- A Chapter 7 bankruptcy meanwhile is a bit different. In this kind of bankruptcy, everything in your company is liquidated as your business slowly comes to an end. This is used by individuals and companies alike, as it is less time consuming and costly than the other types. Unfortunately, this will likely hit your credit, but this can be a much better option than being behind creditors. Sadly, this also means losing your business in its entirety. If you have high debt but low income and asset value, then this type might be a better choice.
- Lastly, a Chapter 13 bankruptcy may allow you to keep your business and have help sorting your finances. This allows you to undergo a repayment plan with some if not all of your creditors. A caveat of course is that you’ll be spending a degree of money paying your profits as per the repayment plan you’ve filed. This can be a better option than simply closing the business for good, however.
Bankruptcy can become an option to consider and an option to prepare for. This isn’t to say all businesses will go bankrupt, but it might be much better to be prepared for these kinds of situations instead of being caught off guard when the moment comes.
When considering bankruptcy for your business, it’s important to consider what kind of business you have in order to determine the best kind of bankruptcy for you. Aside from this, it’s important to help make sure you get the appropriate legal help and advice before ever proceeding with the option. This is why it’s extremely crucial to get the advice of a lawyer or an analyst in the situation in order to help you make informed decisions about your business.
After all, not being careful with how you file your bankruptcy may even affect your other sources or income, or it may have a negative effect on your life as a whole.
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.