This blog recently discussed a Tennessee company that was struggling, and other business owners may wonder what to do if they are in a similar situation. When a business is struggling with debt, it can be an overwhelming situation. The options available, and how they operate, can depend on the business structure and whether it is a sole proprietorship, partnership, LLC or corporation. When a business is behind on its debts, creditors may attempt to collect money that is owed and filing for bankruptcy can have an impact on what creditors are able obtain.
The structure of the business, and the extent to which is impacts the personal liability of owners, can also affect the available bankruptcy options. It is important to keep in mind that any bankruptcy process though, begins with a temporary stay after the bankruptcy petition is filed. This stay prevents creditors from pursuing collection actions during the process and can give a business or individual filing for bankruptcy much-needed breathing room.
Depending on the structure of the business, and the goals of the business owner or owners, different bankruptcy options may be available to help a struggling business. Chapter 7 bankruptcy provides a liquidation process, wherein the assets of the business are liquidated to repay creditors. This is similar to the process in a personal bankruptcy, and the business is closed.
In circumstances where the company seeks to remain in business, Chapter 11 bankruptcy and Chapter 13 bankruptcy are reorganization bankruptcy options. These involve business debt negotiations that may also be available, depending on the structure of the business and the circumstances and goals of the owners.
When considering the options available, a struggling business and its owners, should thoroughly understand the options available and how they work. Familiarity with available options can help determine which option is best for the company, its owners and the future of the company.
Source: SmallBusiness.FindLaw.com, “Options When You Can’t Pay Your Business Debts,” accessed on Feb. 13, 2017