When should a business consider filing bankruptcy?
There are various chapters of bankruptcies available to partnerships and corporations as well as other business entities. However, Chapter 7 and Chapter 11 are the two more commonly filed business bankruptcies. When a business is unable to meet its financial obligations, it may be time to consult with a bankruptcy attorney. It is always better to be proactive and find out what options are available before the business is facing lawsuits, judgments and potentially a loss of assets.
If a business files a Chapter 7 bankruptcy it will no longer be able to conduct business and the assets will be liquidated to pay the creditors.
On the other hand, if it is viable to continue to operate the business by restructuring the debt, then a Chapter 11 may be an option.
Depending on which Chapter of bankruptcy a business files and the terms of the contracts with creditors, there may also be a need for the owner(s) of the business to file a personal bankruptcy…this is usually the result of the individual(s) signing a personal guarantee on behalf of the business.