What To Consider When You’re Looking Into Bankruptcy For Your Business

What To Consider When You’re Looking Into Bankruptcy For Your Business

Disclaimer: This article should not be treated as legal advice. It’s recommended that readers still consult legal counsel and contact a lawyer should they have any concerns regarding bankruptcy.

If you’re running a business, you know it’s important for you to have a plan for a lot of things. It’s not just important to make sure your business makes profit, but to make sure this profitability is maintained. Part of these plans are contingency plans for emergencies, protocols when dealing with clients, and even the usual content flow for a certain period. What we tend to forget however is that it’s also important to know what to consider when you’re looking into bankruptcy for your business.

If you find yourself a bit confused with the notion, however, and would prefer to have more in-depth information related to your business as a specific endeavor, then you may perhaps consider sharing your sentiments with a legal professional and a business professional. Their training can greatly help provide helpful insight for you to be able to understand the full considerations of bankruptcy in terms of your business.

According to the American Bankruptcy Institute, 819,760 non-businesses and 24,735 businesses filed for bankruptcy in 2015. This means if ever you consider filing for bankruptcy, you’re not exactly alone in this vital part of your decision-making process.

Know What Happens

Now that you have your reasons laid out, it’s also important to consider just what exactly happens if your company goes bankrupt. The first step, which can be detailed by a lawyer, is to declare bankruptcy courtesy of a bankruptcy petition that is filed to your local federal bankruptcy court. Afterwards, your creditors are now obligated to stop their collection activities towards you because of an automatic stay order.

  • Specifics now depends on the kind of bankruptcy, especially if you’re a small business. There are bankruptcy schedules to file, which list your incomes and expenses, contracts and leases, and assets and liabilities.
  • In the United States, there’s something called theS. Trustee Program that can assign a bankruptcy trustee to your specific case. This person will oversee the handling of payments and assets to creditors when necessary.
  • This is also where the kinds of bankruptcy come in, as your objectives can change the kind of bankruptcy you should take.

Liquidation is something to consider if you plan on closing your business down and will allow your assets to be divided amongst your creditors. This is under a Chapter 7 bankruptcy, which makes you give up assets involved in your business. The kind of assets you give up depend on the kind of business you have.

  • Chapter 7 for sole proprietors is easier and cheaper, as personal debts and business debts will be removed. This kind of bankruptcy can clear debts such as utility bills, back rent, lawsuit judgments, loans, and credit card debts. Unfortunately, as sole proprietors, the business and the owners are not separate entities if the law is considered. This means all business debts will be your responsibility, and your assets are now under risk. This means things you own can be seized if needed in order to pay your debts.
  • Chapter 7 for corporations and partnerships can be a more streamlined way for you to close. The trustee assigned to you will evenly distribute the assets to your creditors, although business debts will not be cleared. In these partnerships, the partners are also part of the legal entity of the business, which makes them also responsible for the debt of the business. These owners are therefore responsible for the business debts. In terms of corporations, shareholders are normally protected from personal liability to the business, but shareholders aren’t necessarily exempted from paying these debts.

Reorganisation can also be an option if you think your business can still run. This allows you to restate liabilities and assets, and certain arrangements can be made to help you pay creditors and at the same time continue operations. Chapter 11 and Chapter 13 bankruptcy options apply here.

  • Chapter 11 bankruptcy allows you to manage a business through reorganization. If you’re a sole proprietor, you don’t necessarily have to close your business. Your debts are now going to be reorganized so you can pay your creditors monthly, but you have to make sure you have the means to support this kind of monthly endeavor.
  • Chapter 11 for corporations and partnerships are much more costly, as it’s time-consuming, potentially risky, and complicated as more processes are involved. If you think you’ll be capable of paying your debt while operating, however, then this can be a good option.
  • Chapter 13 meanwhile is a reorganization option if you’re a sole proprietor, and partnerships and corporations can’t file for this. Chapter 13 is similar to the aforementioned Chapter in such a way that you can still run your company while paying back debt, but there are certain limitations in unsecured and secured debt that you can’t exceed to file for this.


Knowing what to consider when you’re looking into bankruptcy for your business is an extremely important consideration, especially if we’re thinking of the future of our company and even our finances as a whole. Even if we know bankruptcy is not exactly something we consider part of our business goals, it’s still important to at least know how to approach the subject should it be something we should actually do.

Veronica Ferguson

Veronica Ferguson is equipped with more than 20 years of experience as a businesswoman. She is currently writing her next big project and hopes her pieces would impart vital knowledge to her readers. Veronica is a family woman, and is often with her family during her free time.

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