Law Office of Judith A. Descalso Law Office of Judith A. Descalso

The life of your business after filing for bankruptcy

For some residents in California, dealing with minor financial challenges is common; however, these are often easily overcome with proper budgeting or adding another job to his or her life. When a small business owner deals with financial problems, this is frequently owed to business debts, personal debts or both. Depending on the severity of the situation, some circumstances require a business owner take more serious steps, such as filing for bankruptcy.

In this blog, we will examine three typical approaches a business can take, and by understanding these, a business owner can gain a better idea of how the life of their business will look post-bankruptcy.

The first and most common approach is to file for a Chapter 11 bankruptcy. While this is likely the most expensive and complex type a business can undergo, it typically allows a business to remain operational. This type of bankruptcy requires a trustee, and the health and longevity of the company will likely be impacted by the decisions made by the trustee that is seeking to avoid further financial fallout. All in all, the future of the company often lies in the hand of the trustee because they decide the direction that the company will be going during and after the bankruptcy process.

The next bankruptcy option is a Chapter 13, which is reserved for sole proprietors that are also filing for personal bankruptcy. This is a preferable option in this situation because it allows the sole proprietor to hang on to their personal assets when their personal and business finances are intermingled.

The last option is a Chapter 7 bankruptcy, which is known as a liquidation. This means that the business will be no more, and if the business owner seeks to remain a business owner, he or she will be faced with starting a new business. However, a past business failure could impact a new venture, so this should be considered in the timeline for starting a new business venture.

While filing for business bankruptcy means that your finances will be altered, this does not mean that your financial future will be doomed. It is important to understand what options are available to business owners and what steps can be taken to reduce the impact the process could have on their financial future.

Source: Huffington Post, "Life After Bankruptcy: When and How Your Business Can Get Its Financial Groove Back," Jared Hecht, Sept, 2, 2015

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