If your business is overwhelmed by debt, and you are at risk of losing your personal assets, you may want to consider filing for bankruptcy. In which case, the court will appoint an Arizona Chapter 11 bankruptcy trustee to oversee your operations.
As an entrepreneur who has put in so much to see your business thrive, you’ll likely feel broken if your business is on the verge of collapsing. The thought of losing all you’ve worked hard for can be heart-wrenching, to say the least. However, the reality of entrepreneurship is that not all new businesses succeed. In fact, even the “seemingly” solid companies hit hard times too. So, if you find yourself in such a situation, know you aren’t alone, and that great times are ahead.
Facing considerable amounts of debt due to a business failing is immense. If your business is sinking, it might be about time to start weighing options. Otherwise, you could end up losing your personal assets, including your children’s future savings, vehicle, savings, and home. Bankruptcy for entrepreneurs can save you from losing everything you have worked hard for.
Understanding your options
If you have massive debt and can’t see the light at the end of the tunnel, it’s essential to understand the options that you have, including bankruptcy. If you decide you are going the bankruptcy route (to protect your business), the court will assign an Arizona Chapter 11 bankruptcy trustee to safeguard the interests of the creditor. Irrespective of whether a case falls under Chapter 7, 11 or 13 bankruptcies, there will be a bankruptcy trustee with different powers and obligations depending on the situation.
Under the bankruptcy law, at the time you file for bankruptcy, a bankruptcy estate, which comprises of debtor’s property, is created. This estate is a separate legal entity aside from the debtor. And since the estate isn’t a person, a bankruptcy trustee steps in to oversee the estate and perform different duties as per the law and the situation of a particular bankruptcy case.
Filing for bankruptcy
Businesses run into bankruptcy due to:
- Lack of financing
- Poor market conditions
- Cash flow crisis
- Hasty decision making
Despite the cause, you can take advantage of bankruptcy, though your options will vary depending on a range of factors, including your business structure, the assets, and debts that you have and whether you plan on continuing operations or not. Bankruptcy can help you to close your business quickly – because you won’t have to deal with aspects like disposing of equipment, selling inventory and gathering unpaid invoices. Sometimes, bankruptcy can help your company weather the storm if you plan to stay in business – meaning you’ll be able to stay afloat while reducing the debt.
Types of bankruptcy for small business
You have two ways to handle your failing business through bankruptcy: reorganization or liquidation. Depending on your business (and/or preference), you may go with either. Let’s break down what each entails.
If your business cannot repay its debts, it may need to liquidate and divide the assets among creditors.
Chapter 7 bankruptcy
Chapter 7 uses liquidation to deal with a collapsing business. If you choose this bankruptcy, you have to shut down the company and forfeit your assets (depending on the structure of your business). Chapter 7 bankruptcy is a cheaper and easier option for sole proprietors, as it wipes out all qualifying personal and business debts, including loans, credit card debts, lawsuit judgments, and utility bills. However, it doesn’t clear debts like tax obligations. Note that since personal and business finances often mix in a sole proprietorship, your personal assets may be at risk.
Chapter 7 bankruptcy also works for partnerships and corporations, but unlike in sole proprietorship, it doesn’t wipe out business debts. So partners are liable for the debt and must pay all obligations to creditors once the assets are liquidated.
Not all businesses going through financial stress are destined to fail. If you think you can resuscitate your business, then you may seek for reorganization. In this case, you’ll have to restate your liabilities and assets and make new arrangements to offset your debts.
Chapter 11 bankruptcy
Chapter 11 uses reorganization to deal with failing companies. With this bankruptcy, you’ll continue operations as per the terms of the bankruptcy.
If you are sole proprietor seeking for this bankruptcy, your debts are designed in a way that lets you pay smaller amounts to the creditor. But to qualify, you have to have enough cash flow to pay the creditors every month. Its recommend filing Chapter 11 when you want to keep your business, don’t qualify for Chapter 7 or want to save an asset that would be disposed under Chapter 7. Chapter 11 also allows partnerships and corporations to run a business while offsetting their debts in small amounts. However, it is costlier than Chapter 7.
Chapter 13 bankruptcy is a reorganizing alternative for sole entrepreneurs. It is similar to Chapter 11, though it has a debt limit. Again, Chapter 13 is not available for partnerships and corporations.