You started your business with hard work and a dream, but perhaps things haven’t worked out quite as you’d hoped. With the economy always in flux and inflation hammering small businesses, a growing number of companies are filing for bankruptcy. If you’re thinking about this option for your business, set aside some time to talk to an attorney and figure out if it’s the best option for you.
The sooner you learn about your options for business bankruptcy, the sooner you can plan for your future and take action. Call Padgett & Robertson at 251-342-0264 to schedule a consultation now.
Does Your Business Structure Qualify?
There are several types of business structures in the United States, including sole proprietorships, LLCs, and corporations. The structure you’ve chosen does affect your options for bankruptcy.
For example, imagine you function as a sole proprietorship. While you are still a business owner, the business is not a separate entity and you can’t just declare bankruptcy for the business. Your only option is to declare personal bankruptcy and have your business-related debts discharged along with your qualifying personal ones.
Some other business types and situations may also lead to personal bankruptcy. That’s one reason it’s important to talk to an attorney before hanging all your hopes on business bankruptcy.
Know What Your Goal Is
What exactly do you hope to accomplish with bankruptcy? There are multiple options for businesses, and the best option for you largely depends on what you imagine life after bankruptcy to look like.
Do you want to continue running with a different structure or do you want to close up shop completely? Determining what you want from your business—and whether or not what you want is practical—will guide you to Chapter 7 or 11 bankruptcy for your business.
Products vs. Services—It Matters What Your Business Sells
Your best option may also depend on the assets you hold. If yours is a service-focused business, your assets lie largely in your talent, knowledge, and experience. Selling off your assets will likely not result in a substantial loss for you and lead to a full discharge, at which point you may be able to continue working as a sole proprietor. However, if you have sizable assets because you are a product-focused business, you will likely lose those if you pursue Chapter 7 bankruptcy.
Your Credit Could Be Affected
You should expect your personal credit to be affected by your business bankruptcy unless your bankruptcy attorney tells you otherwise. While large corporations largely use Chapter 11 bankruptcy, which protects their executives’ credit, small business owners are more likely to be forced to file personal bankruptcy. This could impact you in the future if you need to buy a home, buy a car, rent an apartment, or otherwise use your credit as a reference for your reliability.
Some people file bankruptcy with plans to start their business back up under a new name. Recognize that your credit may not allow you access to the same financial resources that you had the first time around. Chapter 11 bankruptcy has become more accessible to small businesses in recent years, so it is an option worth pursuing. It involves reorganizing your business so that you can continue operating while still paying off your debts.
Plan for Your Future
It all comes down to the profitability of your business and what you hope to do in the future. If your future plans are dependent on you having excellent credit, you may want to do anything in your power to avoid declaring bankruptcy. If you’re in so deep that you just want to close your business, get rid of your inventory, and move on, Chapter 7 might be the best option for you. If you see a path to profitability but you just need to tweak things a bit, talk to an attorney about Chapter 11 bankruptcy.
Discuss the Future of Your Finances with Padgett & Robertson
It’s difficult when your business dreams don’t come to fruition, but there’s a path forward. The team at Padgett & Robertson is ready to help you compare your bankruptcy options. Give us a call at 251-342-0264 or to get started.