Before you file business bankruptcy know your business bankruptcy options

If you find your business is in financial trouble, how do you figure out whether you should file business bankruptcy? Ask yourself several questions: Is the business a corporation, partnership or proprietorship? Corporations and partnerships are legal entities separate from their shareholders or partners, and can file Chapter 7 or Chapter 11 bankruptcy on their own. Be cognizant that in a partnership's Chapter 7 business bankruptcy, the trustee can sue the general partners of the partnership if the partnership's assets are insufficient to pay partnership debts. Partners may be facing a suit by a well-funded trustee suing for the benefit of all creditors of the partnership. Get sound advice before moving ahead on a partnership bankruptcy. It’s important to know your business bankruptcy options.

Proprietorships are just an extension of the owner and can't file small business bankruptcy alone (no separate legal entity). The proprietor, who is the owner, must file the personal bankruptcy, as the property and debts of the business are really just one form of assets owned by the proprietor. The individual business owner may file a Chapter 7, Chapter 11 or Chapter 13 bankruptcy (if the debt limits are met). SHOULD THE BUSINESS BE REORGANIZED OR LIQUIDATED? To answer this question, you have to know what has caused the problems the business. What reorganization can do is:

• Free up cash from paying old debts to use currently;
• Enable debtors to negate leases or contracts that are no longer working for them
• Immediately stop company assets (or cash) going to creditor collection actions.

Between Chapter 7 liquidation bankruptcy and reorganization, a Chapter 13 or Chapter 11 bankruptcy could provide space to sell as a going concern or push off assets. The profit could pay taxes or unpaid salaries. This can be complex and should be reviewed with a bankruptcy attorney. The corporate bankruptcy could then be converted to a Chapter 7 business bankruptcy, or dismissed if protection is no longer needed. The court will most likely have the business bankruptcy debtor pay creditors from sale profits.

Small business bankruptcy can be hard for an already hurting business. The legal expenses are costly. Most reorganizations fail, usually for lack of a workable plan to solve the underlying business problems.  Businesses with little capital, have few assets, or are extensions of the owner are ones that it may not pay to reorganize. The owners may be better off liquidating the business and starting over.  Chapter 7 may be the best choice when:

• The business has no future
• There are no substantial assets
• The debts are overwhelming 

A Chapter 7 personal bankruptcy can often provide an s corporation or c corporation (or even LLC's) with an orderly liquidation. You should check if this is applicable when filing bankruptcy for medical bills.  Deciding whether to file business bankruptcy is appropriate for your company may be one of the most difficult decisions you'll ever make. Know all your business bankruptcy options More....