When Bankrupting Is Worthwhile

by : KMArticles

For many business owners bankruptcy seems scary but, sometimes, declaring bankruptcy is a worthwhile strategy. If you are considering the possibility of declaring bankrupting for your business, this article will review some key points you must know. Two of the most popular types of bankruptcy include Chapter 7 and Chapter 11.

Under a Chapter 7 bankruptcy, the judge gets rid of the business debts while under a Chapter 11 bankruptcy the owner must create a plan to repay debtors. While Chapter 11 bankruptcy allows the business to continue running, bankrupting under Chapter 7 forces the closing or selling of the business.

Although these laws may seem gloomy, occasionally they are the business owner's most practical choice. A Chapter 7 bankruptcy is worthwhile when the business has no chance of making a future profit. It also makes sense if the company has no assets and the debts are insurmountable. In these cases, undergoing a bankruptcy may be the best decision the business owner can make.

Although bankruptcy is an option, it also has some negative outcomes. A business owner should always consider the legal fees associated with filing bankruptcy. They are often high for both Chapter 7 and Chapter 11. Some companies find themselves filing for bankruptcy only to close their business anyway to pay the legal fees. Remember that lawyers do not work for free. Get an estimate before you decide to file.

Recovering From Bankrupting Your Small Business

Small businesses owners bankrupting their companies should know that recovering from a Chapter 11 filing is possible. The goal of Chapter 11 bankruptcy is to place the company on more stable financial ground. While the courts relieve the company's debts, they also help in reorganizing it. They hope is to make it more profitable in the future. While this outcome appeals to many small business owners, they must realize that bankruptcy puts them at the mercy of the United States Trustee. The Trustee now oversees all business transactions until the company emerges from bankruptcy. For many business owners this is troubling. They have lost the freedom associated with running their own business. Business owners who are not comfortable with this degree of oversight should not seek out a Chapter 11 bankruptcy to solve their financial problems.

Avoiding Bankrupting

There are many useful tips for avoiding the need for bankrupting but unfortunately even with the best of plans there is always the possibility that bankruptcy is necessary. In these cases, it is wise for the business owners to recognize the need for it early on. This helps them avoid compounding the company's financial problems. In general the methods owners use to prevent bankruptcy are associated with to good, general business practices.