Business Talk: Knowing About Bankruptcy
There are several factors and circumstances that cause small businesses to fail. Accordingly, the owners of these failing enterprises often find themselves in a difficult situation of deciding whether or not they should file for bankruptcy.
Although you’re probably already familiar with how it works, bankruptcy, in its legal sense, is a process that entails going through federal courts so an individual or organization can receive assistance in paying back debts and other financial obligations under the regulation and protection of the bankruptcy court.
Business bankruptcies are often described as the reorganization or liquidation of assets — it typically depends on what type of bankruptcy a particular company is eligible for.
That’s why it’s important to be informed about them, especially if you’re caught up in a messy financial situation. While you can hire a bankruptcy attorney in your Salt Lake City neighborhood, it would be best to still study what you’re getting yourself into. Below, we’ll discuss types of bankruptcies and their differences:
Types of Bankruptcy
When your business is on the brink of bankruptcy, you should be aware that there are three types of bankruptcy that you may opt to file for, depending on its configuration.
- Business Bankruptcy – Chapter 7
This may sound negative, but if you think that your business has no viable future, then opting to file for Chapter 7 bankruptcy may be the best choice. It is commonly referred to as a selling out. This is the best choice when debts are too overwhelming and you see no chance of recovery. In addition, it’s a suitable option when your business does not have any significant assets. Furthermore, Chapter 7 bankruptcy typically means that the business is totally over.
In Chapter 7 bankruptcy, a representative is appointed by the bankruptcy court to take ownership of the properties and assets of the business and allocate them among the creditors, thus resulting to a court decision of “discharged.” This relieves the previous owner from any debts and obligations.
- Business Reorganization – Chapter 11
If your business has the chance to recover financially, then opt to file Chapter 11. This bankruptcy is a plan in which a company or business undergoes reorganization and continues to perform its operations but under a court-appointed representative. Plus, if the court favors you, you may become the trustee.
With the reorganization plan, it will provide payments to creditors over some period of time, which may be around 20 years or more. However, confirmation of a plan is not fast. Oftentimes, it takes more than a year, which means that Chapter 11 bankruptcies are quite complex and not every business succeeds.
- Personal Bankruptcy – Chapter 13
Lastly, there’s Chapter 13 bankruptcy, a reorganization process of bankruptcy that is usually reserved for consumers. However, it can be used by sole proprietorship. You may file a repayment plan with the bankruptcy court specifying details such as how you will provide payment for your debts.
The amount you have to pay will depend on your base salary or how much you earn, how much debt you owe, and the properties you own. If your private assets are joined with your business assets, or if you own a sole proprietorship, filing a 13 is your best choice to avoid problems such as losing your house, cars, and other properties.
Consulting a reliable and qualified lawyer is a must before finalizing your decision on whether it’s necessary to file bankruptcy or which specific type to file. In a business-centered state Utah, you can easily find a bankruptcy attorney in Salt Lake City, Provo, and its other cities.