People in a variety of situations can find themselves facing unsustainable levels of debt. In some cases, running a small business might lead to an entrepreneur overextending themselves. They may worry that they cannot meet all of the company’s financial obligations without some kind of outside assistance.
Bankruptcy can be very helpful for business owners dealing with major debts that endanger the company’s future or their personal resources. However, many people associate bankruptcy with businesses closing down due to insolvency, not the recovery of struggling businesses.
Does a decision to file for bankruptcy as a business owner automatically result in the shutdown of the company or a requirement to cease operating?
Each type of bankruptcy is different
Some business bankruptcy filings might result in an immediate interruption of business operations. A Chapter 7 bankruptcy involves the liquidation of company resources. The possibility of creditors making claims against a company’s assets makes continued operations difficult to ensure.
However, there are other types of bankruptcy available that do not require asset liquidation or force a company to cease operating. Chapter 11 bankruptcy involves restructuring a company and its financial obligations. Restructuring efforts can help a company continue operating while benefiting from an automatic stay.
Business owners can also file Chapter 13 bankruptcy and commit to a multi-year repayment plan for certain debts. If the business relates to fishing or farming, a Chapter 12 bankruptcy could be an option. Any form of bankruptcy that requires a repayment plan or debt restructuring potentially allows the business to continue operating despite temporary financial hardship.
Particularly when there are debts that could put business resources at risk or that might result in a creditor lawsuit, business owners and executives could benefit from exploring all of the different types of bankruptcy possible. It is sometimes an option to pursue bankruptcy while keeping the company operational. The ability to renegotiate certain debts and potentially discharge some financial obligations can make a major difference.
Seeking personalized guidance when contemplating business bankruptcy can diminish the risks and enhance the benefits that an organization derives from the process. Bankruptcy isn’t just for failed or closing businesses. It can also help companies that experience temporary financial hardship overcome substantial debts.
