If you are one of the many small business owners currently struggling, you may be considering filing for bankruptcy. If so, it is essential to understand your options. You have two available for businesses: Chapter 7 and Chapter 11.
If you want to keep your business, your only choice is Chapter 11, because Chapter 7 means your business will be closed and its assets liquidated to pay anyone you owe money to. So, presuming you want to keep your business, you need to understand how a Chapter 11 bankruptcy functions.
If you choose Chapter 11, you will need to file a plan of how your company will make money again to pay its debts. If there is no future for your business, you may be wiser taking Chapter 7.
Once you file for Chapter 11, your creditors have to stop bothering you. In effect, it gives you a chance to breathe and assess how you can get out of the situation you are in.
You will be allowed to terminate contracts and leases. Creditors may reduce the total debt payable and renegotiate their payment schedules. A trustee will be appointed to oversee you, and the court and your creditors must approve your reorganization plan.
However, many small businesses that file for Chapter 11 end up taking Chapter 7 sometime later because they cannot make it work. Choosing whether to call it a day or try and fight to save your business is a tough decision, especially with current economic uncertainty. An experienced bankruptcy attorney can help guide your choice.