How is it fair, they wonder, that big businesses get bailed out while smaller businesses are left to twist in the wind?
But here is the truth that escapes many small business owners: bankruptcy can offer valuable protection, and maybe even a route back to solvency–but only if you understand critical information. Below are three things that every business owner needs to know before filing for bankruptcy:
1. Bankruptcy is a long, complex process. It’s unfortunate, but true–bankruptcy is a long and confusing process. There are countless forms to be completed, notarized, and filed–it’s enough to make anyone’s head spin. As a business owner, if you don’t have the time to manage the details properly, it’s important that you seek the help that you need. Failure to stay on top of these details will likely lead to disaster.
2. Bankruptcy doesn’t have to mean losing your company. It’s a common misconception that bankruptcy always means surrendering or giving up on a business. But Chapter 11 bankruptcy allows business owners the opportunity to reorganize and restructure their business, while receiving protection from creditors. It’s not a simple process, but with the proper guidance, Chapter 11 can allow a business to emerge from bankruptcy stronger than ever.
3. Depending on your business structure, bankruptcy could impact your personal finances. If your business is incorporated, your personal assets are not jeopardized by business debts and liabilities. It is important to note, however, that many owners of incorporated businesses have personally guaranteed or co-signed the debts of their corporations, in which case they are not protected. If you operate your business you can also be liable. Incorporating only helps if you do not manage the business yourself. As a sole proprietorship or a partnership, you are typically responsible for business debts, so you need to consider the impact that bankruptcy could have on your personal assets. If you’re not sure how bankruptcy could impact these assets, it is essential that you seek qualified legal advice immediately.
It’s important that business owners facing financial duress understand their options. Unfortunately, the bankruptcy process is complex and often overwhelming–but the good news is that there are resources to help you through the process.
[Image: Flickr user crashmaster]