With business ownership come high risk and the potential for high reward. Unfortunately, many business owners find themselves overextended or facing an imbalance as far as the product or service they offer and the current demand. When this happens, financial challenges can leave the business struggling to survive and the business owner stressed. Perhaps the best option for these business owners to take in attempt to reaching a fresh financial start is to file for bankruptcy.
When a business chooses to file for bankruptcy there are typically two options. The first option is Chapter 7 bankruptcy. Under this form, all business assets are sold and the proceeds are used to pay off creditors. Any debt remaining after this process is completed is forgiven. This type of bankruptcy is known as liquidation and is usually reserved for businesses that have no hope of recovering and reaching profitability again.
A second option for business owners seeking bankruptcy is to file for Chapter 13 bankruptcy. This method allows the business to remain open in hopes of turning around while a new plan is devised, with court supervision, to repay existing debt. This reorganization of debt may grant the business owner debt relief in several ways. Such a filing may reduce interest payments, create more manageable payments, give the business owner protection, and stop creditor harassment for several months in order to develop a repayment plan.
Filing for bankruptcy may be scary for many business owners and the process can be extremely complex. However, an experienced bankruptcy attorney can help a business owner understand the process and make the decisions that will lead to a fresh financial start and hopefully, under a Chapter 13 filing, a profitable business.
Source: Fox Business, "A Bankruptcy Guide for Business Owners," Donna Fuscaldo, August 6, 2013