Facing bankruptcy in your personal life is a frightening thought. When it’s your business that is at stake, it can also be extremely scary to think about. You might be able to protect your personal finances, but it could mean losing your livelihood. Sometimes, too many business debts could mean you need to file for personal bankruptcy, for example if you’re a sole proprietor. Bankruptcy is usually a last resort, and you need to make sure it’s the right decision if you decide to file. Before filing for bankruptcy, it’s important to consider the following things.
What Other Options Can You Explore?
Bankruptcy shouldn’t be the first option you consider if you’re struggling to pay your business debts. Before you go down the route, it’s important to think of what else you could do to get your finances back under control. Trying to work out a payment plan to pay your creditors should be your first step. You might be able to meet your minimum payments by cutting costs, renegotiating payments, and creating additional cash flow. If you’re not sure what to do, seek financial advice about the best ways to handle your debts. Consolidating them could be an option to consider.
Understanding Bankruptcy for Businesses
There are a few different types of bankruptcy to consider for your business. If you’re a sole proprietor, you and your business are the same entity financially. So you’re liable for your business debts, and you would file for personal bankruptcy. This means filing either for Chapter 7 or Chapter 13 bankruptcy. Chapter 11 bankruptcy is used to reorganize a debtor’s business affairs, assets, and debts. Filing for this type of bankruptcy is for corporations, LLCs and partnerships. The debtor becomes a “debtor-in-possession”, keeping control of property or the business. In some cases, individuals might file for Chapter 11 bankruptcy, or if you have waived liability for your business, you might file for personal bankruptcy instead.
How Can You Survive Post Bankruptcy?
It’s important to consider what will happen to your business after you have filed for bankruptcy. Getting it back on its feet can be tough, especially while you’re still working things out in bankruptcy court. You might need to think about different types of financing that will help. DIP is a financing method that can be given priority status by the court to make it easier to obtain the funding your business needs. You need to consider methods like these that will help your business to survive.
Is It Time for Liquidation?
It might also be worth considering if liquidation should be an option for your business. Perhaps you’re unsure that your business would be able to survive after declaring bankruptcy. While liquidation is a drastic step, it might be the right choice if your business will no longer be viable. Of course, it’s essential to consider the advantages and disadvantages before deciding if it’s the right choice for your company.
If your business is facing bankruptcy, make sure you do your research first. Get professional advice to help you understand what’s best to do.