Starting a small business implies taking many risks, and being ready to face many difficulties, all for the chance of making that business thrive and change your life forever. However, sometimes things don’t go as planned. The reasons may vary: maybe your idea didn’t work when tested in the market, maybe you weren’t selling your product to the right audience, or you may have been the victim of circumstances beyond your control, such as a natural disaster or the recent global pandemic. Suddenly, your business debts start to skyrocket but your revenues keep decreasing, and you are forced to think about what to do to overcome this situation.
If your business is sinking in debts, chances are that at some point you will consider filing for bankruptcy to get rid of them. If bankruptcy makes you uncomfortable, it’s probably because of the bad reputation it has earned over the years. However, this is mainly due to the myths that have been spread about this process. The truth is that bankruptcy is a legal process that can help you wipe out your personal or business debts, allowing you to rebuild your finances from scratch.
However, bankruptcy can be a very complicated process if you are not familiar with it. You may not know which type of bankruptcy best fits your case, or what you should do to get started with your filing. That’s why talking to a business bankruptcy lawyer in Los Angeles Ca, such as KT Bankruptcy Lawyer, might be a good idea. Most bankruptcy law firms in this city offer free consultations, feel free to contact them to find the perfect lawyer for you.
What kind of small business do you have?
If you are thinking about filing for bankruptcy, you should keep in mind that the type of small business you own will affect your options during the process.
Nowadays, many people run their small businesses. Even if you devote all your time to an online store, or paint houses as a side business, in some way or another you are an owner.
Now, there are several ways in which a business can be set up. The simplest qualification is where you are the “sole proprietor” of the business. In this case, it implies that you are self-employed and do not have to file paperwork with your state. Here, the assets of the business and those of the owner are not separate.
On the other hand, General Partnerships (GP), Limited Partnerships (LP), and Limited Liability Companies (LLCs) are also popular choices for small business owners. These, unlike sole proprietorships, file paperwork each year with their state and pay the corresponding fees. You may also have a C-Corporation or an S-Corporation. In each of these cases, the business is a separate entity from the owner. In other words, the business and owner’s assets are separate.
What are your options?
If your business is incorporated as a GP, LP, LLC, or some type of corporation, you will probably only be eligible for Chapter 7 business bankruptcy and Chapter 11 bankruptcy, also known as business bankruptcy.
On the other hand, if you are the sole owner of your small business since your assets are indistinguishable from those of your business, you may be able to turn to Chapter 7 personal bankruptcy, Chapter 13 bankruptcy, and Chapter 11 bankruptcy.
If you are not sure which type of bankruptcy is best for your situation, you should consult with a bankruptcy attorney near you to help you with this difficult decision.
Chapter 7 Bankruptcy
If you are the sole owner of your business, you may qualify for Chapter 7 personal bankruptcy to get rid of your debts and those of your business in the same bankruptcy case. Furthermore, if your business debts exceed your personal debts, you won’t even have to pass a means test to qualify for Chapter 7 bankruptcy. Overall, this is probably your best option for getting out of debt quickly.
However, if your small business is a corporation, partnership, or Limited Liability Company, Chapter 7 bankruptcy has one crucial difference: you will not be able to receive a debt discharge. Instead, you can opt for this chapter if you wish to liquidate and close down your business transparently and efficiently. But, if your intention isn’t to go out of business for good, you may want to consider other options.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is available for individuals as well as LLCs, partnerships, and corporations. In this chapter, you will have to create a financial reorganization plan to pay your business debts. If you intend to recover from your debts and continue to operate normally, this may be your ideal option.
However, historically, small businesses have avoided Chapter 11 bankruptcy since it is the most costly and complex bankruptcy chapter of all. However, thanks to the Small Business Reorganization Act, this chapter is now accessible to smaller businesses. Consult with a Chapter 11 bankruptcy attorney in Los Angeles if you want to know all the details.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is only available to individuals. If your business is an LLC or a corporation, you won’t be able to file for it. Now, if you are the sole owner of your business, you can opt for this chapter bankruptcy to reorganize both your personal and business debts. In many cases, this is enough to keep your small business afloat. Additionally, if you can reorganize your debts and complete the Chapter 13 payment plan, you will get a debt discharge at the end of the process.
Bankruptcy isn’t the end; it may be just the beginning!
Having to file for bankruptcy can be very difficult for any small business owner. But just because you file bankruptcy doesn’t mean all is lost. Many companies have found success after filing bankruptcy, such as Marvel Entertainment and General Motors. And many people have achieved great things after bankruptcy, like Larry King, George Foreman, and Henry Ford himself.
So, don’t despair, bankruptcy may be the beginning of your path to success.
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