Bankruptcy can be one of the toughest choices owners make. But it can also give them a fresh start. While a business’s credit score can take a hit during a bankruptcy filing, owners can mitigate these feelings by understanding the process and what options they have available.
Chapter 7 can liquidate all assets
Businesses of all structures and sizes can file for bankruptcy. If they face creditor harassment and can’t keep up with their recurring expense, filing for bankruptcy can be a viable option.
Like other Florida business owners, filing for bankruptcy can be a viable option. Chapter 7 bankruptcy can help businesses liquidate all of their assets if their debt burden is too high that they likely couldn’t pay it off over a specific period. This type can allow the bankruptcy trustee to sell the business’s assets and hand over funds to its creditors. However, Chapter 7 completely dissolves the company after it files.
Chapter 11 can help reorganize debts
If liquidating business assets isn’t ideal, owners can pursue a different avenue. Chapter 11, which is comparative to a Chapter 13 bankruptcy for consumers, can allow businesses to set a reorganization plan. This plan not only signals why the business needs to file for bankruptcy but also designates how much it will pay its creditors, how long the plan will be in place and how the company plans to operate during and after its bankruptcy period.
Businesses who choose to file Chapter 11 can benefit from an automatic stay. This means that creditors must stop all collection efforts during the filing period. If a business can come up with a solid reorganization plan, a stay is no longer needed. That’s because it addresses how the company will pay out the monies it owes. Despite the reorganization benefits, there are still a few setbacks. One of those setbacks involves the rejection of real estate leases, which can hinder organizational operations.
And just this year, the U.S. updated the bankruptcy code to include Chapter 5 bankruptcy. This option is similar to Chapter 11 but eases some of the filing expenses that come with Chapter 11, giving businesses who can’t afford to file for Chapter 11 an advantage when negotiating repayment with creditors.
Businesses don’t have to fight this battle alone
Bankruptcy can become complex and confusing, which why some individuals and business owners seek to avoid it. However, filing for bankruptcy can put businesses back on the right track by easing their debt burdens and giving them a chance to start fresh. That’s why owners must understand their legal rights and options throughout the process.