Bankruptcy isn’t much fun to think about. And, ideally, small businesses can avoid bankruptcy with wise money management strategies. But, sometimes even the best plans don’t work out, and you may find yourself considering bankruptcy court for your small business. If your business is buried in debt, bankruptcy is worth considering. Not sure where to start? These bankruptcy tips will get you on the right track.
- Before declaring bankruptcy, consider other bankruptcy alternatives. Financially distressed businesses have options other than bankruptcy. There are two well-known alternatives for these businesses: a liquidation through an assignment for benefit of creditors and an out-of-court workout. An assignment for benefit of creditors is an accepted federal alternative to Chapter 7 bankruptcy. One advantage is that it is usually a little less expensive than Chapter 7. Meanwhile, an out-of-court workout may allow your business to continue operating, thanks to the cooperation of your creditors. This method, of course, depends on the willingness of your creditors and your ability to negotiate with them. Usually, you can prevent your creditors from taking legal action against you with an out-of-court workout; however, dissenting creditors can become an obstacle.
- If bankruptcy is inevitable, start by researching your options. Research is the key; understanding the procedural details will be invaluable. One of the first things you must do is decide whether to file for Chapter 11, Chapter 7 or Chapter 13. Chapter 11 bankruptcy is a good plan if your business has a future. A court-appointed trustee can reorganize the business, and outline a way to deal with creditors. Chapter 7 bankruptcy is best for a business that is suited for complete reorganization. Chapter 13 bankruptcy is only an option if you are a sole proprietor, as it is usually reserved for consumers. In addition to the important decision of which type to consider, you need to learn about the filing process, consequences and so on.
- Hire a good lawyer. No matter how much reading you do on your own, having a lawyer helps. Even if you decide to pursue a bankruptcy alternative, such as an out-of-court workout, an attorney can be a great service. Of course, you can’t hire just any lawyer; you need to hire an experienced bankruptcy attorney.
Armed with bankruptcy research and a lawyer, declaring bankruptcy for your business can be a relatively smooth process. Of course, it may not be a joyful experience, but remember that failure can sometimes lead to success. After all, failure can help you rebuild a better plan, and update your strategy.