While most business owners don’t want to think about it, being forced to go through the bankruptcy process is certainly something you should consider as a possibility. According to the US Courts, there were 25,277 business bankruptcy filings in 2016. If you suspect you may be forced to file for bankruptcy, you need to be educated on the process. Here are some tips that can help.
Learn the Kinds of Business Bankruptcy
Not all business bankruptcies are the same. The two major kinds are Chapter 7 and Chapter 11. Chapter 7 can be thought of as liquidation. This is the bankruptcy you choose if your company has no future and you want to sell off your assets to pay off creditors.
Chapter 11 bankruptcy is the more optimistic choice and involves the company being re-organized under a trustee appointed by the court to hopefully make the company profitable again. If you are a sole-proprietor, you may also go thorough Chapter 13 bankruptcy which is reserved for individuals.
Prioritize Creditors
When you go through the bankruptcy process, which creditors get paid when will be determined by the court. However, before the legal bankruptcy process actually starts, you should take some steps beforehand regarding the prioritization of your debt. Secured creditors should be the ones you attempt to pay first.
Secured debt is of course more protected by the law and may have the forfeiture of assets written into the contract for the loan. Pay off secured loans from banks and other lenders first. Even if others creditors like vendors complain more loudly, it would be foolish to not pay off secured debt first.
Consider Your Options
In bankruptcy, you basically have three different options. These are reorganization, selling the company as a whole and liquidation. Reorganization is probably the best option for many business owners. You will get a fresh start without all that crushing debt to try and make your company successful under a new court guided plan.
However, other business owners may be worn out and want to cease being entrepreneurs entirely. If that is the case, you may want to sell the company outright so it can at least find success under someone else’s leadership. Liquidation of course is the most negative outcome with the company being sold off in pieces and your employees all losing their jobs. Whatever the case may be, discuss the possibilities with a bankruptcy attorney.
Going through the bankruptcy process is not something many entrepreneurs want to do. However, at some point, you may be forced to do so. If so, make sure to educate yourself on the process so you can make the best out of a bad situation.
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