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Options for your business when bankruptcy is on the horizon

Like many California business owners, you have faced your share of tough times. You may have had years of great success between years of struggle, but lately, the struggles seem to be coming more often. Undoubtedly, you thought about it long and hard before concluding that bankruptcy may be the best course of action, both for your business and for your personal interests.

As a business owner, you have several options when it comes to bankruptcy. To make the most of your decision, it may help you to have a better understanding of your alternatives.

Three bankruptcies for businesses

You may have heard advisors warning against combining your personal assets with your business finances. Still, you may not have had another choice, and now you are concerned about the business dragging your family finances down. If your sole proprietorship is entwined with your personal assets, especially your home, you may benefit from filing for Chapter 13 bankruptcy. This form of personal bankruptcy often protects filers from losing their homes as they create and follow a repayment plan approved by the court.

If Chapter 13 is not appropriate for your situation, you may opt for Chapter 11. The benefits of Chapter 11 may be attractive to you as a business owner, for example:

  • The court appoints a trustee to reorganize your assets, and a judge may designate you for that duty.
  • You present your creditors with a plan for repaying your debt.
  • The plan achieves approval through the vote of your creditors and the sanction of the court.
  • As you work through the plan, you may continue to operate your business.

This is the greatest benefit for those who hope to remain in business throughout the process and beyond. Nevertheless, this type of bankruptcy is complicated and not always successful, but it does give your business a fighting chance.

A fresh start

The final alternative is Chapter 7, in which a trustee liquidates your business to repay the creditors. When the assets have repaid as much of the debt as possible, the court discharges the rest of the debt. Typically, this means the end of your business, but it does provide a clean slate if you decide to begin again.

Your circumstances will help determine the most advantageous path for your business. While bankruptcy comes with its share of negative associations, countless successful businesses and entrepreneurs have gained fresh starts after filing for bankruptcy. There is every possibility that the same could happen for you, especially if you have strong legal assistance along the way.

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  • Santa Clara County Bar Association | 1917
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