A lot of small businesses go through hard financial times. Sometimes a brand new business has a great idea or product but it’s located in the wrong market to thrive. An established business can fall on hard times when there’s a sudden downward tick in the local economy.
So when do you close up shop and walk away and when do you try to reorganize your debts and ride out the slump?
The answer may depend on several different things, all of which have to be factored into your decision:
— Do you still think that your business is viable? Is this slump really temporary or is it the end of a market, an idea that’s not ready to take off, or part of a local economy that probably won’t recover any time soon?
— Do you want to continue in the business? Is your heart still in it? If it isn’t, it may be time to close the doors and move on.
— Do you need to file bankruptcy to protect your personal assets? If you don’t want to continue the business, experts say that you only need to go through the bankruptcy process if your small business puts your personal assets at risk.
If you do want to continue the business or you need to protect your personal assets, like your house and car, from your business creditors, you have the bankruptcy court to turn to for help. However, you need good advice on what type of bankruptcy you should file.
A Chapter 11, which is considered a business bankruptcy, may be the first thing you consider—but it might not be right for a small business. Time-consuming and expensive, creditors may not be interested in continuing to work with you.
A Chapter 7, however, can help you close out the business properly and resolve your debts without putting your personal assets at risk if you’re a sole proprietor or in a partnership.
Similarly, a Chapter 13 can allow you to reorganize and hopefully ride out the temporary problems until you’re able to turn a profit (or decide that you can’t, in which case you can try to convert the bankruptcy plan to a Chapter 7 instead).
If your small business is struggling, consider your feelings and options carefully, then a business bankruptcy attorney can provide advice on how to proceed.
Source: QuickBooks, “When Is Bankruptcy the Right Choice for a Small Business?,” accessed March 03, 2017