As a small business owner, you embody the American dream of pulling yourself up by your own bootstraps. However, with so many factors beyond your control, it is all too easy to become one of the 20 percent of new companies that do not make it through their first year.
If you are struggling, declaring bankruptcy may put you in a better position to succeed. Here are three options and their advantages.
1. Chapter 7
When it is obvious that this brainchild is not going to be the one that gets you to the top, there may not be any reason for you to hold on to inventory, supplies and equipment. Liquidating all your assets can give you a clean slate so you are ready to move on to your next big idea.
2. Chapter 11
As a partnership, LLC or corporation, Chapter 11 is the option that allows you to keep your doors open. This type of bankruptcy involves reorganizing your finances. You may be able to downsize by selling some of your assets and using the funds to take care of your outstanding debts. To help you meet your obligations, you may be able to modify payment terms, as well. If your business meets certain size limits, you may be eligible to move much more quickly through the process as a small business case.
3. Chapter 13
You can only file for Chapter 13 bankruptcy if you are a sole proprietorship. Like Chapter 11, you would not lose your business, but would have the opportunity to restructure so that you can pay your creditors through a court-approved plan. After you have made the payments on time every month for a set period, typically three to five years, you would have the balance of your debts discharged. The amount you owe in unsecured and secured debts must be much lower than that of Chapter 11 to qualify.
A bankruptcy attorney can help you determine which plan would best fit your long-term goals and objectives.