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Small Business Bankruptcy Basics

The news often talks about large-scale businesses filing for bankruptcy, but the most common business bankruptcy filers are small companies. It is the sad reality of entrepreneurship that some businesses fail. When a small business’s debts start to pile up, business owners and shareholders should consider bankruptcy. Whether they want to continue the business or close it down, there is a bankruptcy option for them. A knowledgable South Florida bankruptcy lawyer knows the ins and outs of each option and can help any small business that is burdened with debt.

When to File For Bankruptcy?

Bankruptcy may be a good option for business owners if personal assets are placed at risk by business failure. Oftentimes, lenders will required business owners to personal guaranty a debt or require that the business owner use their personal collateral, such as their home, to secured the debt obligation. 

Types of Bankruptcies

Small businesses can file bankruptcy to either cease operations or reorganize and continue operating.

Chapter 7

When a business files Chapter 7, the business ceases operations immediately upon the bankruptcy filing.  A Chapter 7 filing may be better for a business than simply closing because the bankruptcy trustee, and not the business owner, will be responsible for liquidating the business’s assets and compensating creditors. This way, the shut down of the company is efficient and transparent, preventing creditors from seeking to pierce the corporate veil for a business owner’s failure to meet statutory wind down procedures.  A business is not entitled to a discharge in a Chapter 7, but the closure of the business is streamlined.

Chapter 11

When a business files a Chapter 11 bankruptcy, the business is able to reorganize its debts, continue to operate and make smaller monthly payment to creditors than it did pre-filing.

Chapter 13

Chapter 13 bankruptcy is only available to individual filers.  A sole proprietor is allowed to file a Chapter 13 bankruptcy so long as his debts to not exceed the statutory debt limitations.

For those that are burdened with debt and are nearing business failure, filing for bankruptcy may be an ideal choice. Consulting with a knowledgeable South Florida bankruptcy lawyer can help business owners and shareholders get a better idea of the bankruptcy options available for their companies.

If your small business is facing financial struggles and you want to discuss whether filing a bankruptcy case is the right option, call us today for a free consultation.