In our years of combined experience, we at AM Law have repeatedly heard a common question from many of our clients—should I consider bankruptcy? After discussing at length each of their situations and realizing that bankruptcy isn’t the only answer, many of these clients as a follow up question: what are some bankruptcy alternatives?
Because the answers to these questions depend on your unique situation, we can’t tell you what you should do without meeting with you first. With that already said, we can give you a few tips for determining whether bankruptcy is your best choice.
Are you thinking of filing for bankruptcy for your small business? First, let’s take a look at some tips and bankruptcy alternatives:
Bankruptcy Eligibility
The first thing you need to ask yourself when considering bankruptcy for your small business is whether you are eligible. For businesses, there are three types of bankruptcy:
- Chapter 7—the liquidation bankruptcy
- Chapter 11—the business reorganization bankruptcy
- Chapter 13—the personal reorganization bankruptcy
As their descriptors imply, each of these bankruptcies serves a different purpose for specific people or types of organizations. Chapter 7 allows you to sell your assets to pay back your debts. Chapter 11 gives you an opportunity to restructure your debt to make payments more affordable. While Chapter 13 is usually reserved for individuals, if you are a sole proprietor, you can use it for your business. You can learn more about Chapter 7 and Chapter 13 bankruptcy by reading this, and Chapter 11 by reading this.
Assets
Once you figure out which types of bankruptcy you are eligible for, you’ll have to determine how you will pay off your debt. When you file for Chapter 7 bankruptcy, a judge will appoint a trustee to oversee and sell off any assets that can help pay down your debt. If you’d rather keep your assets, Chapter 7 might not be right for you.
Bankruptcy Alternatives
While bankruptcy allows you to start fresh for the most part, it does have consequences. For starters, your credit score will take a big hit, including a mark on you credit score for the next 10 years.
Before filing for bankruptcy, you should determine whether any other options exist. Many people, for instance, do not know that many creditors will work with debtors to keep them from filing. What that could mean is lower payments until you get things under control.
Working on your spending habits and drafting a budget can also have a huge impact how well you can handle your debt.
If none of these options seem to be right for you, give us a call. When you come to us for help, we won’t stop until we’ve exhausted all of your options. In fact, sit down with us for a no obligation consultation. We’ll begin by determining what options you have and what your first steps should be.
Is your small business at risk of bankruptcy? Schedule a no obligation evaluation. We’ll help you consider your bankruptcy alternatives.