Disclaimer: If you’re looking into bankruptcy for your business, the following information does not serve as actual legal advice. It is only a general guideline as to the legal nature of filing for bankruptcy. To understand more about the legal aspect of the subject matter, it’s recommended that you consult a qualified lawyer who has experience in business bankruptcy cases.
If your business has been experiencing a financial difficulty and you are unable to pay off your business debts anymore, you may consider the idea of filing for bankruptcy. Although filing for bankruptcy is often seen as a scary financial option, below are the things to consider when you’re looking into bankruptcy that will hopefully make the process a little easier:
#1. Main Bankruptcy Options
If you think that filing for bankruptcy is a necessary last resort, the next thing to do is to select what bankruptcy option you’re going to take for your business situation.
- Chapter 7 Bankruptcy – When your business does not have sufficient assets to continue the operation and pay off its debts, Chapter 7 bankruptcy is an available option. This type of bankruptcy is typically utilized to close down and liquidate the business. If you’re having a sole proprietorship kind of business, you can make use of Chapter 7 bankruptcy to remove your business debts.
- Chapter 11 Bankruptcy – When you have business plans to reorganize so that it can remain in operation, Chapter 11 bankruptcy can be filed. This type of bankruptcy enables your business to safeguard your assets from the creditors. However, you as the business owner should provide full disclosure of information to creditors about the things that the company is doing to earn the profit again. Chapter 11 bankruptcy can be applied to a sole proprietorship, partnerships, and corporations.
#2. Effect on Your Credit Score
One of the negative effects of filing for bankruptcy is the wiping out of your good credit history.
- When your business declares bankruptcy, your credit score is expected to drop off a huge amount. In fact, the decrease will stay as a negative mark on your credit report for up to 10 years.
- Take note that bankruptcy can be deteriorating to your credit score and it can subsequently leave a mark for the rest of your life.
#3. Filing For Bankruptcy Can’t Fix Anything
When you talk about bankruptcy, it does not mean an instant fix for everything in your business.
- Take note that filing for bankruptcy may not give you a fresh business start since you may lose some of your assets in the long run.
- In these tough times, it’s best if you try to figure out what happened to your business and what are the things you need to avoid in the future so that you’ll not have a bad record of going bankrupt more than once.
- Remember that it’s important if you speak to your attorney or financial adviser about your desire to change your spending habits. If you like, you may seek credit counseling, or you may ask help from a financial planner to help you with your financial choices.
#4. Not All Types Of Debts Are Discharged
If you think that filing for bankruptcy can solve all your credit problems, you are wrong.
- Keep in mind that looking into bankruptcy for your business is not a cure-all to your financial burdens. That’s why you have to understand that not all types of debts can’t be discharged during this procedure.
- It’s best if you exhaust all your available options first before coming up with a decision to file for bankruptcy. That way, you may wipe out all your debts little by little until all can be discharged.
#5. Bankruptcy Involves Public Paperwork
When you’re filing for bankruptcy, you also have to process public paperwork to keep the process going.
- Remember that in procedures like this, you’ll have to spend time off from work to communicate with your attorney and go through with the bankruptcy proceedings.
- Take note that paperwork filings are public as the court will be the one to determine which creditors you are bound to pay back and in what sequence.
- Keep in mind also that a bankruptcy process is a public proceeding since everyone who is undergoing bankruptcy is published in local newspapers and online. In short, you can be stripped off of your privacy, and you may lose control over the process. That’s why you have to be prepared to handle that kind of situation.
#6. Bankruptcy Involves Costs And Requirements
If you’re going through a bankruptcy process, be ready for all the requirements and costs that come with it.
- Take note that once bankruptcy has been filed, the court may now assume jurisdiction over you and your business, and it may order the confiscation of your business credit cards.
- For this process, it’s essential that you know how much money you’re going to pay for your attorney’s fees, court fees and other fees associated with the filing for bankruptcy.
- Remember to get someone who is experienced so that you’ll not end up skimping on the price but at the end, sacrificing quality.
If you think your business needs to file for bankruptcy, these are the things to consider. Filing for bankruptcy can be a complicated process. It is a critical decision that requires the knowledge and skills of an attorney experienced in Chapter 7 or Chapter 11 bankruptcy matters. That’s why it’s best if you contact an attorney to get more information about the process.