You started your small business with the best intentions, but thanks to a competitive marketplace, reduced consumer spending, and difficult economic climate, the once-promising venture is now drowning in debt. Could bankruptcyâ€”specifically, Chapter 7â€”resolve your difficulties?
Itâ€™s possible, but it also depends.
What type of business is it?
Chapter 7 bankruptcy will only eliminate dischargeable debts that you are personally liable for. If youâ€™re running a general partnership or sole proprietorship, this type of bankruptcy can give you the fresh start you are looking for.
If you are running a corporation or LLC, then things are different. In this instance, you are only responsible for business debts that you signed for or personally guaranteed. The company is responsible for all other debts and can only discharge them by filing a business bankruptcy.
Keeping your business open
If you file for Chapter 7, you may have to close your business. The bankruptcyâ€™s automatic stay immediately protects you from creditor collection efforts, but your trustee is required to liquidate and sell all non-exempt assets in order to pay those creditors off. Depending on how your company is structured, this can effectively end your operation.
If you no longer want to be an entrepreneur, then this likely wonâ€™t bother you. But if you envision better days ahead and definitely want to keep your doors open, Chapter 7 may not be your best option. If you see no alternative, however, remember that many business owners have shut down temporarily, used the bankruptcy process to eliminate crippling debt loads, and then gone back into business later.
With sole proprietorships, you and your company are legally one and the same. When you file a personal Chapter 7, all unsecured business debts will effectively be disposed of, and you may take advantage of state or federal exemptions to protect many company assets. This situation can allow you to continue operations even after you file for Chapter 7.
If you definitely want to remain open and there are valuable business assets that you could potentially lose in Chapter 7, you may want to try negotiating a solution with your creditors or even reorganizing the company in Chapter 11 or Chapter 13 bankruptcy.
Experienced advice is best
If you believe that Chapter 7 is truly the best way to deal with your business debt, then contact a New York bankruptcy attorney to schedule a consultation. They can assist you in eliminating some or all of the company’s debt while safeguarding as many of your own personal assets as possible. Whatever you decide, remember that many business owners who file for bankruptcy start another company later and become more successful the next time around. Jayson Lutzky is a Bronx, NY attorney with more than 33 years of experience. He has represented thousands of highly satisfied clients and offers free in-office initial consultation. Call 718-514-6619 to set up an appointment and visit www.MyNewYorkCityLawyer.com to learn more.