Bankruptcy options for small business owners
Here in the Atlanta area there are a number of small businesses. Sometimes these ventures thrive for many years, and other times, unfortunately, small businesses do not make it. When a small business decides to close its doors, business owners are often faced with tough decisions about how to resolve financial issues.
The first step is often for the business owner to determine the exact remaining debts and whether these can be reduced. For example, if a business owes money for a security system, it may be possible to contact the security company and ask if it would be willing to take back the equipment and reduce the outstanding balance accordingly.
If once all liabilities are minimized to the extent possible, unmanageable business debts still exist, the business owner will need to take a look at whether he or she personally guaranteed any loans. Many small business owners have personally guaranteed loans, which means that a lender may be able to not only go after the assets of the business but also the personal assets of the proprietor.
In such situations, it may be wise for the business owner to file for personal bankruptcy protection.
A Chapter 13 personal reorganization bankruptcy, which is generally used by consumers, is available to sole proprietors. In this type of bankruptcy, a repayment plan is created based on the filer’s earnings and debt, among other things.
In other cases, Chapter 7 is a good option. Chapter 7 is often referred to as liquidation bankruptcy. For small businesses, a Chapter 7 filing would generally consist of a trustee taking possession of the business’s assets and distributing them among creditors, after which business debts would be discharged.
Deciding whether to file bankruptcy is a major decision for a small business owner. The protections offered by bankruptcy vary–in some cases, it might be possible to reorganize debts without closing the business, and in others it may be better to close the doors and walk away with a clean slate.
Business owners should seek legal counsel when considering these options.
Source: Fox Business, “My Small Biz Failed. Should I File Bankruptcy?” Justin Harelik, July 31, 2013