Forms of Small Business Insolvency

Forms of Small Business Insolvency "Beginning a small business is difficult, and some small businesses do end up declaring bankruptcy. If your small business is struggling to survive and a financial restructuring is not an option, you may be forced to declare bankruptcy. This will allow you to repay or discharge your company's debts under the protection of the court, so you do not have to fear losing everything. However, there are at least three distinct categories of bankruptcy for small businesses, and you should be familiar with them before contacting a bankruptcy attorney.Under Chapter 7 bankruptcy, your small business will be liquidated and you will never attempt to restart it. When you file for this form of bankruptcy, you typically have so many debts that it's impossible to repay them all, and you don't have many assets to use to repay the business. Essentially, this form of bankruptcy relies on a trustee to distribute the business's assets to creditors, and when everything is paid or the assets run out, the owner receives a discharge, meaning he or she is no longer responsible for paying the debts.If you believe your business could survive, Chapter 11 bankruptcy may be a preferable option. If you have numerous assets and are not completely submerged in debt, this form of bankruptcy may be right for you. Essentially, a trustee will reorganize the company and draft a formal plan to pay the creditors, who will then either approve or reject the plan. The debts may not be paid off for more than twenty years, but they will ultimately be repaid, and businesses can often recover from this type of bankruptcy.Chapter 13 bankruptcy for small businesses is only available to sole proprietorships. Essentially, you develop a repayment plan and submit it to the court. You may not have to repay all of your debts, but the amount you do owe will depend on a number of variables, including your assets and income. Small business owners who have intertwined their business and personal assets will sometimes file for Chapter 13 bankruptcy to protect their personal assets as well as their business assets, making this a viable option for many sole proprietorships.
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