It can be overwhelming to have a business that is struggling with debt month after month. It can create anxiety and concerns about creditor actions and the future of the business. What actions creditors may be able to take against the business or against the business owners largely depends on the structure of the business; however, debts such as tax debts are not impacted by the structure of the business, and the business owners can be liable for those debts. Filing for business bankruptcy can also impact creditor actions.
Once the filing party has filed a petition for bankruptcy, an automatic stay goes into effect that prevents creditor collection actions from continuing or beginning. This can provide much-needed time for the business. It is important to first be familiar with the different types of business bankruptcy available and to know which is the best option for the situation and the continuing goals for the business. Depending on the structure of the business, bankruptcy options can vary and may impact the business and the individual owners differently.
As a general understanding, Chapter 7 and Chapter 11 are business bankruptcy options that either allow the business to liquidate assets to repay creditors and end the business or to reorganize debts and take other strategic actions under the supervision of the bankruptcy court to repay creditors, keep the business running and return it to profitability. The business bankruptcy process, and its implications on the business and business owners, can be technical and complex, which is why it is helpful to have trained guidance throughout the process.
Business bankruptcy is a resource available to help struggling businesses so business owners should fully understand their options. Familiarity with the resources available to them will help business owners determine what is the best option for their business and the goals they have for their business.
Source: Smallbusiness.findlaw.com, “Options When You Can’t Pay Your Business Debts,” Accessed Dec. 6, 2016