When it comes to personal finances, most people are a bit apprehensive to talk about bankruptcy. After all, it is considered a personal failure by most. However, that is not always the case. There are instances of unpredictable and unavoidable financial issues that might drive you to a personal bankruptcy.
It’s good to know that personal bankruptcy is not the only kind in the US. According to experts at The Law Offices of Mark L. Miller, another big and important type of bankruptcy is business bankruptcy – which is sometimes preferable to personal bankruptcy. Here is a simple breakdown on what business bankruptcy is and what it can do.
How to Know If It Is Better to File a Personal or Business Bankruptcy?
You may think that personal and business bankruptcies are a very different thing, and that they are completely separate, but that is not always the case.
It all boils down to the type of business you operate. If the company is an LLC, the company has a separate legal identity. That means that you personally are not responsible for any debts accrued by the company. That is essentially what LLC stands for – limited liability company.
On the other hand, if your company is a sole proprietorship, you and your company are the same entity in the eyes of the law – meaning the debts of the company are your own. At this point, your best bet is to consult a bankruptcy lawyer and discuss the best course of action.
In some instances, a personal bankruptcy might be cheaper and less damaging to the company’s reputation, especially if you intend to keep the company going after the financial hardships are done.
Types of Business Bankruptcies
Just like with personal bankruptcy, business bankruptcy is an umbrella term – there are several different options you have if your business is struggling financially.
The first thing you need to consider is whether you want to keep the business going even after the bankruptcy. If the answer is yes, chances are you will be looking for restructuring plans rather than liquidation of assets.
Chapter 11 Business Bankruptcy
As mentioned before, restructuring the company and the debts is the least painful step you can take if bankruptcy is inevitable. If you file for Chapter 11, all collections on existing debts will be paused until the resolution of the bankruptcy process.
This is your chance to propose a different repayment plan to your creditors, and best of all, it leaves you in control of the sale of assets, so you can limit the forfeiture of important company assets. Chapter 11 grants the company at least 5 years to resolve the repayment issues and in the end, the company can remain solvent and functional.
Chapter 13 Business Bankruptcy
Another type of restructuring bankruptcy is chapter 13. This type of bankruptcy is available to sole proprietors of businesses. It enables the owner of the struggling company to restructure the ownership of the company and the debt which is also personal debt. Chapter 13 often reduces the amount of debt and extends payments anywhere between 3 and 5 years.
Chapter 7 Business Bankruptcy
Finally, if the business owner wishes to liquidate the company, they can opt for Chapter 7 bankruptcy. Thanks to the protections that the bankruptcy process grants, the company can be dismantled in a more ordered way and without the pressure from creditors.
There are instances when simply letting the company dissolve without needing a bankruptcy filing. However, there are too many variables for a layperson to be able to navigate easily. That’s why having a bankruptcy lawyer by your side is always a good idea in these kinds of situations.
