Should i bankrupt my company

If the business has other debt, those creditors have a right to be paid by the business as well. It often does not make sense to continue operating a business after bankruptcy. Fourth, consider whether it would be easier, simpler, and less stressful to close the business and form a new and different business.

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To qualify for Chapter 7 bankruptcy, there are a couple requirements you will have to meet. Learn More. There are a couple requirements to qualify to file a Chapter 13 bankruptcy. Not only does filing for Chapter 7 streamline the closure of the business, but the transparency of selling assets through the bankruptcy proceeding can help dissuade potentially disgruntled creditors from claiming fraud or alleging that the stakeholders raided assets before closure.

Avoiding this type of litigation could save all involved substantial legal costs. Partnerships and corporations aren't entitled to debt discharge in Chapter 7—so even after the Chapter 7 case ends and the business closes, the business debts will remain.

Usually, this isn't a problem because a creditor can't collect debts from a nonexistent company. However, creditors can still collect from individuals personally liable for company debt, such as small business partners. The critical point is that filing a business Chapter 7 case will not eliminate the partners' personal and individual responsibility to pay the business's bills.

And the Chapter 7 trustee might look to the partners' personal assets for payment, so it's virtually unheard of for a partnership to file for Chapter 7 bankruptcy. Similarly, while the corporate structure protects shareholders from individual liability, shareholders should be aware that bankruptcy is not without risk.

Once the corporation files for bankruptcy in federal court, the door is open for creditors to initiate alter ego litigation a lawsuit that asks a court to make the shareholders personally liable for the corporation's debt. It's not that a bankruptcy filing is necessary for an alter ego filing. The filing of a bankruptcy case can trigger a creditor to take action to protect a claim that the creditor wouldn't have taken otherwise.

A more straightforward and often more effective way to wipe out personal liability for a business debt—including a personal guarantee —is to file for Chapter 7 individually after a business closure.

Although the filer's nonexempt personal property could be at risk, if the filer's business debt exceeds all other debt, the filer won't need to qualify by passing the Chapter 7 means test. This "loophole" allows the filer to wipe out qualifying debt in Chapter 7 despite making a considerable salary.

Consult with a knowledgeable bankruptcy lawyer experienced in business bankruptcies. Because Chapter 13 is only available to individuals and sole proprietors , partnerships and corporations that seek to stay open by restructuring debt must look to Chapter Chapter 11 allows companies to operate while paying less toward debt. In the past, many small businesses found Chapter 11 cost prohibitive because of the additional rights afforded to creditors and the increased legal fees that result.

However, the relaxed procedural requirements of Chapter 11, Subchapter V give small business owners the option of restructuring debt using processes similar to Chapter 13 bankruptcy. Your bankruptcy lawyer can evaluate whether Chapter 11, Subchapter V will work for you. Business bankruptcies are complicated, and in many instances, a bankruptcy attorney must file the case. Filers should seek legal advice from a knowledgeable bankruptcy attorney early in the process to ensure adequate protection of their interests.

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Call us at 1 As a result, it is an attractive option for sole proprietors with little or no business assets because it will wipe out the business debts and allow the owner to continue providing the service, thereby keeping the business running. Also, if you have more business debt than consumer debt, you'll be able to file a business bankruptcy and avoid the means test which means that your income won't prevent you from qualifying for a Chapter 7 discharge. To learn more about Chapter 7 bankruptcy, how exemptions work, and what happens to your debts and property, see Chapter 7 Bankruptcy.

In most cases, bankruptcy is entered into voluntarily. But that isn't always the case. In some situations, creditors will force a debtor into bankruptcy involuntarily. Involuntary cases are highly unusual. Creditors use the process primarily to force a company into a business bankruptcy. It's rarely used against an individual in a consumer bankruptcy because meeting the prerequisites necessary to file an involuntary bankruptcy isn't easy to do.

Most cases require several creditors to get together and agree to file against a debtor. If accomplished, the court appoints a bankruptcy trustee to take over all aspects of the business, sell the assets, and distribute the proceeds to the creditors.

Although this seems like it would be helpful, many creditors would rather initiate their own collection actions. By doing so, they retain the ability to grasp a larger share of the business assets.

Once in bankruptcy, a creditor is more likely to have to share proceeds with other creditors and take a smaller portion, or, in some cases, get nothing at all.

It's important to understand, however, that a creditor might not be able to keep funds collected shortly before bankruptcy—especially if it's considered a preference claim favoring one bankruptcy creditor over another. But, many are willing to take the risk, and return the funds, if necessary. The involuntary process begins in the same manner as a voluntary action— official bankruptcy forms get filed with the court. If you'd like to learn more, read Involuntary Bankruptcy.

Only individuals can file a Chapter 13 bankruptcy case. So if your business is a partnership, corporation, or LLC you cannot file Chapter 13 on its behalf. If you are a sole proprietor, you can include both personal and business debts in your Chapter 13 bankruptcy just like you can in a Chapter 7 bankruptcy.

A Chapter 13 bankruptcy might be your best option if the sole proprietorship has income coming in. You might be able to keep the business going while paying a lesser amount on both personal and business obligations that are nonpriority unsecured debt —such as credit card bills, utility payments, and personal loans.

You might run into a problem, however, if your sole proprietorship requires you to keep a lot of goods, products, or expensive equipment on hand. Although Chapter 13 bankruptcy allows you to keep your property, you still must be able to protect it with a bankruptcy exemption and most exemptions won't cover significant business assets.

Otherwise, you have to pay the value of the nonexempt assets in the three- to five-year repayment plan. Because many business owners are tight on cash, keeping all the property that you need might not be feasible if you don't have enough coming in to pay a hefty monthly plan payment. Partnerships, corporations, and LLCs must file a Chapter 11 bankruptcy instead of a Chapter 13 bankruptcy to reorganize debts and stay in business.

A sole proprietor can file a Chapter 11 bankruptcy, as well. Chapter 11 bankruptcy is similar to Chapter 13 bankruptcy in that the business keeps its assets and pays creditors through a repayment plan. However, it is usually a lot more complicated when compared to Chapter 13 bankruptcy because the business must file continuing operating reports and the plan must be approved by creditors. It's also prohibitively expensive for most small businesses.