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Posted on: 18 September 2017

If you have a business that is losing money, then it may be time to consider bankruptcy. Bankruptcy is not the end of the world, but it is extremely frustrating and stressful, especially when it concerns a business entity. As a business owner, you likely have many questions that need to be answered. Keep reading to learn about some answers to a few common questions on business bankruptcy:

Can You File For Chapter 13?

Most people have heard of chapter 13 bankruptcy, and it is what most individuals will seek when they have unmanageable debt. This type of bankruptcy allows people to retain their possessions. A repayment plan must be followed in order to pay back debts either partially or fully over the course of the bankruptcy period. 

While chapter 13 is typically something that is reserved for personal debts, it can be something considered by individuals who have sole proprietorships. Also, if your business and personal assets are commingled in some way, like with a partnership or another type of business, then chapter 13 is possible. Basically, it allows you to protect a lot of your personal property while also repaying your debts.

In essence, you are filing for personal bankruptcy, since the business is technically your property. The amount you pay back to lenders will depend on how much you owe, the worth of your possessions, and how much you make. You will have the choice to retain, reorganize, or dissolve your business during the bankruptcy. 

Can You Simply Reorganize?

If you do not have a sole proprietorship, but what to reorganize your business in an attempt to turn a profit in the future, then what you want to seek is chapter 11 bankruptcy. This is the type of bankruptcy is something that partnerships and corporations will look into. During the chapter 11 process, an individual called a trustee will reorganize the business. This person is appointed by the court and will come up with a plan for repayment and restructuring. Creditors do need to agree to this plan and it can take upwards of a year or more before one is structured in a way that all individuals agree upon it.

You should know that the repayment plan does have a specific window where debts need to be paid partially or fully. This timeframe is within about 20 years. Since there are so many parts and complex processes involved in chapter 11 bankruptcy, it is wise to work with an attorney who specializes in the legal complexities, especially if you want your business to succeed in the future.