Running a business is difficult, and unfortunately many business fall by the wayside every year, forcing owners to declare bankruptcy either on behalf of themselves or their businesses. If you own a small business and are considering declaring bankruptcy, you should start your consideration by learning more about the options you have available to you. Let’s look at a few of them here.
Most people know of Chapter 7 bankruptcy as an option for individuals, but business entitles can also use it. Business owners may choose to file on behalf of either themselves or their business unless they are the sole proprietor of their business in which case both entities are considered one and the same.
- Pros: Filing for Chapter 7 as a sole proprietor wipes out all of your business and personal debt simultaneously in one process, making it a much easier process. Furthermore, Florida’s lenient exemption laws allow you to save many of your business assets so you don’t even have to liquidate them.
- Cons: Unless you are a sole proprietor, your business does not receive a discharge of debts through Chapter 7 bankruptcy. You also cannot use exemptions to protect your assets if you are filing Chapter 7 on behalf of your business (sole proprietors always file a personal bankruptcy, which allows them to utilize these exemptions).
Sole proprietors may also choose to utilize Chapter 13 bankruptcy, however, any other form of business entity cannot use this process.
- Pros: This process allows business owners to keep all their assets and pay back their debts using a payment plan, including discharging any debts that can’t be repaid as part of the plan. You can even keep your business open when reorganizing and going through the process.
- Cons: This process takes substantially longer to complete than Chapter 7, and also adds a considerable amount of financial stress to business owners who must make a monthly payment to a trustee for three to five years until you have completed your repayment plan requirements.
Generally, small business choose not to exercise this option because it’s complex, risky, and expensive. However, it’s the only option available for partnerships, LLCs, or corporations to be able to keep the doors open and lights on while going through reorganization.
- Pros: Allows business entities to continue operations while going through the process, and gives them a substantial amount of freedom in finding the ideal solution to their individual situation. Furthermore, this option allows businesses who have more debt than is legally allowed in a Chapter 13 case to still declare.
- Cons: As stated previous, these plans are subject to a lot of risk and complexity, requiring a substantial amount of time before they’re fully resolved. These case are also expensive, since there are large fees associated with filing and you’ll need the services of a Brevard County bankruptcy lawyer for much longer than in other instances.