Small Business Bankruptcy

Small Business Bankruptcy

Small businesses are challenged with a myriad of problems. Perhaps the most common problem is small business bankruptcy, especially on the first two years of operation, which are considered the most critical period for any start-up business. More often than not, bankruptcy is caused by undercapitalization and not just mismanagement. Entrepreneurs should have access to large sums of money equal to the projected revenue on its first year plus overhead. If the entrepreneur does not have access to that money, he could end up liable for all the debts.

Sb bankruptcy happens to a lot of start-up companies. Some can bounce back but some don’t. They find themselves in a bind and must decide whether filing for sb bankruptcy is the solution. Filing for bankruptcy is a legal process that has to be filed in federal courts and is actually meant to help the struggling business repay their debts and loans. Depending on the type of bankruptcy you file for, the result can either be liquidation or reorganization within the company. Businesses can file for three types of bankruptcy in court – Chapter 7, 11 or 13.

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Chapter 7 is perhaps the best option for companies that does not have a future of recovering. This usually happens when the total debt amount is so overwhelming and that are no real assets that can be sold and restructuring won’t help at all. A court-appointed trustee takes possession of all the properties and distributes them to creditors. Chapter 11 is for companies that still have a chance of recovering. A trustee will create a plan that will outline how the company will continue operations and repay their creditors. Chapter 13 is usually a repayment plan approved by the court and computes for how much you can pay based on how much you earn or own.

Always seek legal counsel from a bankruptcy attorney before deciding on which sb bankruptcy type to file.

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