As many Tennessee business owners know, not all companies succeed. Whether it's a small business trying out a new product in the market for the first time or a larger one overextending itself financially, bankruptcy can happen to any company at any time. Although no company wants to succumb to bankruptcy, learning about the options available can make business bankruptcy easier to handle.
For small businesses, Chapter 7 bankruptcy may be the best option. Also known as liquidation, this option is good for companies when there is no hope for recovery. All the assets are sold and paid to creditors. If there is still outstanding debt, they are forgiven and the business shuts down. However, if nobody buys the assets, then the owner can buy them back and restart the company. The cost for such a bankruptcy, however, can cost anywhere between $2,000 and $5,000.
Chapter 11 bankruptcy is another option. This is reserved for larger businesses that can succeed with a reorganization plan. The company will continue to operate, but it will be highly scrutinized for a while. This bankruptcy can cost $10,000 or more. There is also a Chapter 13 bankruptcy option, but because many small companies operate as sole proprietorships, the owners are liable for all debts incurred by the business.
Before deciding if commercial bankruptcy is right for a company, it's best to consider all other avenues first before resorting to bankruptcy. Plus, there are situations when a business may perform better in the future, so it's best not to close down the business altogether. Business owners may want to work with creditors first before going down the route of bankruptcy, which is a major financial decision.
Source: FOX Business, "A Bankruptcy Guide for Business Owners," Donna Fuscaldo, Aug. 6, 2013