Being a small business owner has its perks, but it is not for the faint of heart. Especially in the first few years when there are operational costs that might exceed the revenue generated, it can feel like a losing proposition.
That makes it challenging to know when to throw in the towel on your small business. But what if you could ease the pressure from creditors and still keep the doors of your business open to customers?
As it turns out, that may indeed be possible if you file for Chapter 11 bankruptcy. Unlike a Chapter 7 personal bankruptcy that wipes a debtor's slate clean, filing for Chapter 11 allows a business to reorganize its debts and have more time to repay them.
Read on to decide whether filing for Chapter 11 would be a viable alternative to shuttering your business.
You give your business more time to turn a profit
While there's no point in beating a dead horse, your business might still have some life in it. One option of Chapter 11 bankruptcy is to remain a "debtor in possession." This allows you to keep operating your business during the pendency of your bankruptcy proceedings.
It can be voluntary or involuntary
You can file of your own volition, but if at least three of your creditors file, you could be forced into filing. It's possible to contest a filing, but your creditors have the right to seek to restrict your business methods to recoup their losses.
The court also has a role
While you remain a debtor in possession, the bankruptcy court has to veto or approve any major decisions like breaking the lease, selling off assets or hiring attorneys.
The court can decide whether to approve a loan for an infusion of cash for your business. If so, it can give the lender "superiority." That means that this lender gets paid before other unsecured creditors of the business.
Not all creditors are equal
Chapter 11 bankruptcy treats creditors differently in the reorganization plan, i.e., secured creditors with security interests in collateral must receive at a minimum the collateral's value in the reorganization plan.
Could this be a workable plan for your small business? Talking to a Tampa bankruptcy attorney can provide you with answers to your financial dilemma.