Small Business Bankruptcy

As an entrepreneur facing troubled economic times, you may be wondering what small business bankruptcy will mean for you if you decide to pursue that route.

Filing for bankruptcy is a procedure that follows several laws. Part of those laws dictate what you can do based upon what kind of business you own. For example, corporations and partnerships can file for either Chapter 7 or Chapter 11 bankruptcy. This is because they operate as legal entities that are separate from shareholders or partners.

If your business is a proprietorship, then it is considered an extension of your assets. It is part of what you own. Unfortunately, in this case you can't file bankruptcy for the business alone as it is considered an asset belonging to you, the business owner, as the proprietor. However, talk to an attorney to see if there is a chance to separately classify your business debts by filing a Chapter 13 bankruptcy and whether or not a repayment plan can be structured in your situation. If so, you may be able to keep some of your assets.

If you are a small business owner, filing for bankruptcy is something you probably never expected to do. No one wants to go bankrupt, but it does happen. Bankruptcy laws have been put into place to protect you in these circumstances and are designed with safeguards to protect your lenders as well.

Filing for small business bankruptcy won't be easy on you emotionally, and while less than ideal, it will keep you out of jail and ensure that your lenders are treated as fairly as possible. They will be reimbursed in the most equitable way available within the given circumstances. How much they received and how it is handled will partly depend on which type of bankruptcy you file for.

Chapter 7 Bankruptcy involves the complete liquidation of your company's assets. The money received through this process is used to pay off your debts to qualified lenders. Once you file for bankruptcy, the responsibility of collecting the non-exempt assets to be liquidated is given to an appointed trustee who takes care of selling them in order to pay your creditors. People file for Chapter 7 bankruptcy more than any other kind of bankruptcy.

It's important to know that if you own a partnership and file for Chapter 7 bankruptcy, the trustee appointed to your bankruptcy case can sue the general partners of the partnership in cases where the business assets aren't sufficient to pay partnership debts.

Chapter 11 Bankruptcy lets you stay in business, but forces a reorganization of your business. The hope behind Chapter 11 bankruptcy is that the reorganization allows debt payments to be restructured in a way that allows your business to meet its financial obligations from earnings yet to come. A court-appointed trustee oversees the reorganization.

Once you've determined the type of bankruptcy best suited for your business situation, you can initiate bankruptcy proceedings. However, it's important to note that this decision isn't always up to you. Your creditors can also initiate proceedings, but no matter how it starts, certain limitations apply:

• Limitations on business owner: Not allowed to transfer assets.
• Limitations on creditors: Not allowed to contact business owner in regards to debt collection.

To understand bankruptcy and how creditors get their money, first it is important to realize there are secured creditors and unsecured creditors. A secured creditor is one who has collateral toward their loans. This is why secured creditors get paid first. They receive the amount their collateral is worth or the collateral itself, but if this doesn't pay the entire debt, the rest of the debt owned is moved to the unsecured debt category along with things like credit card debt.

While some sources tell you that you can save yourself a lot of money by taking care of your bankruptcy yourself, it really isn't a wise move. Bankruptcy laws can be complicated, and you really want to be sure that things are handled properly. Search for a reputable bankruptcy attorney in your area. Your local bar should have a referral panel to help you find a bankruptcy attorney equipped to help you decide on the best option to eliminate your debt.

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