If you are a business owner, you are well aware that your business is your livelihood. Therefore, when your business is struggling to meet incoming bills and other outstanding debts, it can be a strain on you and your family in many ways.
While the number of businesses filing for bankruptcies has been on the decline for the past several years, there are still many businesses that find that they must turn to bankruptcy to remedy a desperate financial situation.
Unfortunately, the process of filing for bankruptcy is a challenging hurdle for any business – and family associated therewith – to overcome. This is especially true in a modern-day economy that does not serve to favor the small town, locally owned businesses.
Not only is filing for bankruptcy emotionally and mentally draining, but it also comes with many outlying questions. Specifically, many business owners find themselves concerned with whether filing for bankruptcy means that they must shut down their business.
While every situation is different and your decision may vary based on the nature of your business and the type of bankruptcy you are filing, there are several factors to consider in determining whether you can continue to operate your business if you file for bankruptcy.
Determine What Type of Bankruptcy is Being Filed
When it comes to figuring out whether you can keep running your business after filing for bankruptcy, you must take into consideration what type of bankruptcy is being filed. The main difference is found between a Chapter 7 bankruptcy and a Chapter 11 bankruptcy.
Chapter 7 bankruptcies can vary when it comes to businesses, as it depends on how you own the business. Businesses such as partnerships and LLCs can function as separate legal entities, owning their own property and protecting you individually. Alternatively, if you own the business as a sole proprietorship, you may only file for personal bankruptcy. Overall, a Chapter 7 bankruptcy is more likely to result in liquidation of the business.
In Chapter 11 bankruptcies, businesses keep running in order to make money to repay creditors. Therefore, Chapter 11 bankruptcies are more beneficial for those who seek to keep their business open, as it involves paying off outstanding debts over time.
Determine Whether the Business is Making Money
No matter what type of bankruptcy you are filing, whether it be on behalf of the business or on a personal level, you need to take into account your current financial state.
After deciding to file for bankruptcy, your first action-item should consist of looking at your costs and profits. If running your business is causing you (or the business) to lose money day-by-day, you will want to cut-back on that cost. In this situation, perhaps shutting down your business or cutting back on operations when you file for bankruptcy is a good plan – even if it is temporary. If you are running a low-cost business this may not be as much of an issue.
Determine Whether you are Personally Liable for any of the Business Debts
It is important to remember that if you file for bankruptcy, any LLC or business ownership can be included in your bankruptcy estate. A bankruptcy trustee may take over shares of any corporate or business ownership interest, sell it, and distribute any proceeds to the business’s creditors. If a corporation is owned by many members, however, it is possible that you may be able to file for a personal bankruptcy without any interruption to the business.
If you are personally liable for any of your business debts, you may want to consider taking a different approach than a shut-down. While you should not take on more debt in the face of filing for bankruptcy, keeping your business running may be beneficial when it comes to negotiating with creditors, especially if you find yourself unable to satisfy business debts and are concerned about the possibility that creditors will attempt to obtain your personal property.
Ultimately, filing for bankruptcy as a business owner is challenging and requires high attention to detail. If you are a business owner who is thinking about or in the midst of filing for bankruptcy, contact our Colorado bankruptcy specialists today.
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