What is Small Business Bankruptcy?
A bankruptcy is a legal process that provides protection from creditors and legal action. It is a legal and ethical way to wind down a business that has too much debt.
A bankruptcy is the best option for a small business that has stopped operating but still has debts; that is not profitable and the small business owner does not think it will be profitable; or, when the small business has debts and the business owner does not have the money or energy to keep the business running.
A small business bankruptcy can only be filed with a Licenses Insolvency Trustee such as Farber. Contact us to book a no-charge, no-obligations initial consultation.
Remember, bankruptcy is not the only option. We will review all options available for your small business and help you make the right decision for you and your family.
Is Small Business Bankruptcy the Right Choice for Me?
One of the most difficult decisions that a small business owner ever has to make is whether or not to put his or her business into bankruptcy. Obviously, every business owner goes into business hoping for success, so considering bankruptcy isn’t just a factual decision, but an emotional one as well. It’s very important to understand the facts about small business bankruptcy and the other options available to you before you make a decision. This will help you avoid making a rash decision that could be the wrong one.
The reality is that, for many businesses, there are options other than small business bankruptcy available. One possible option is a Proposal to Creditors. In a proposal, you make an offer to your business creditors to repay a portion of what is owed to them and/or stretch out (often lower) monthly payments over a longer period of time. This ensures that creditors receive at least some of what is owed to them while allowing the business to avoid bankruptcy and stay in operation.
A proposal can be a good option for a small business that has run into recent financial issues while having had success in the past or for a small business that has turned things around, but is struggling because past problems are weighting it down.
However, for some businesses, filing for small business bankruptcy is the option that makes the most sense. A Licensed Insolvency Trustee can help you understand the options available so that you can decide if bankruptcy is the appropriate option for you.
Each Business is Unique
The reality is that there is no “one size fits all” answer to the question of whether or not you should file for small business bankruptcy. Each situation is unique. That’s why it’s important to sit down with a Licensed Insolvency Trustee and listen to the information that he or she provides. Not only is a Trustee responsible for actually filing the small business bankruptcy (if this is the route you choose to take) but he or she will review your financial situation and provide you with important details about all of the options that are available to you.
Once you have all of the information that you need, you will be able to make an informed decision about the future of your company. A Trustee will never try to pressure you into choosing one option over another. It is always your decision as to how you will proceed. If you decide to file for small business bankruptcy, the Trustee will notify your creditors and complete the necessary paperwork. The Trustee is also responsible for selling or disposing of the business’ assets.
Filing for Small Business Bankruptcy
As mentioned, each situation is different. However, there are a few factors that are important to keep in mind.
The first is that, if your business is a sole proprietorship or a partnership, filing for small business bankruptcy is essentially a personal bankruptcy. This is due to the fact that there is no legal separation between the assets and the debts of the business and those of the owners. If you run a proprietorship or partnership, you will certainly want to be aware of this fact. Depending on your personal financial situation, it may or may not be wise to file for bankruptcy if your small business is struggling.
An incorporated business is a separate legal entity and thus all assets and debts are owned by the business itself, not the individuals who own the business. Therefore, filing for small business bankruptcy as the owner of a corporation may not require filing for personal bankruptcy.
Another factor to keep in mind is that filing for bankruptcy will result in your business losing its assets. A Licensed Insolvency Trustee can help you understand this aspect and make sure that assets are properly and legally sold, disposed or returned to secured creditors, as the case may be.
Filing for bankruptcy means that the operations for the small business will stop and the business will be closed down. A Trustee will perform the required administrative functions to wind down the business and close out accounts as necessary.
Generally, the bankruptcy of a small business makes sense in the following situation:
- The small business has ceased operations and you want an orderly and legal way to wind it down.
- The small business is not profitable and you do not think it can be profitable in the future.
- The small business has debts that cannot be repaid in full and you do not have the energy or desire to invest the necessary time and effort to continue with the business, even if the debts were settled through a proposal to creditors.
Filing for small business bankruptcy is not a decision that should be made lightly. It is typically considered a “last resort” that is only pursued if there are no other possible options and you need to shut the business down. However, bankruptcy is a valid option that can help you alleviate your financial issues and satisfy your creditors, so it is worth considering if your business is having serious financial trouble.