As a business owner, you are responsible for making difficult decisions to help your business succeed. However, when you are facing challenging times and cannot pay back any debt you owe, understanding your legal options is critical. There are several bankruptcy options for business owners, so it may be in your best interest to discuss your options with an Orange County business bankruptcy lawyer who can assist you in determining the best option for your circumstances. The following blog explores the considerations you should make and what you should avoid if you believe filing is in your best interest.
What Are the Bankruptcy Options for Business Owners?
There are several options to consider if you own a business and want to file for bankruptcy. Generally, the first thing you’ll need to consider is the type of business you run. Businesses are eligible to file Chapter 7, Chapter 11, or Chapter 13, depending on their structure. For example, you cannot file Chapter 13 as a partnership or LLC and must pursue Chapter 7 or 11 instead.
Unfortunately, the large majority of business owners who pursue a Chapter 7 filing are unable to keep their doors open. This is because the trustee will liquidate your assets as a means of repaying creditors. As such, you may find that your business can be sold as a means of repaying debt.
For many, Chapter 11 is an option that functions similarly to Chapter 13, in that they both reorganize the debt of the filer. Often, this option allows you to pay down your debt while keeping your business open. It’s important to note that Chapter 11 can take longer and is often more expensive than Chapter 13.
Whether or not your business should remain open is an important consideration that you must make when discussing your circumstances with an experienced bankruptcy attorney. Typically, if you have more debts than assets and are not bringing in enough revenue, closing may be in your best interest. However, if you do have a steady stream of income but are facing challenges, you may be able to benefit from reorganization.
Is There Anything I Should Avoid Before Filing?
If you are a business owner and you are considering filing for bankruptcy, understanding what to avoid in the months leading up to your petition is critical to protecting your best interest during this process.
One of the most important things you should avoid if you anticipate filing for bankruptcy as a business owner is to pay back any friends or family members who have lent you money. Though you may think this is in your best interest, you’ll find that your bankruptcy trustee will look at all payments made within the previous year to see if any creditors received an unfair advantage or “preference payment.” As such, they can take the money back from your relative, and if they cannot produce the funds, they can be sued by the trustee.
You also should avoid anything that could be considered fraud, as this can result in the dismissal of your case or criminal charges. As such, giving yourself a bonus, taking company equipment, or purchasing luxury items or services can all be considered fraud.
Filing bankruptcy as a business owner can be an incredibly difficult and confusing process. Not only are you trying to keep your business afloat, but dealing with the legal complexities of bankruptcy can be confusing. As such, it’s in your best interest to connect with the Law Offices of Michael D. Pinsky, P.C. Our firm can work with you to determine the necessary steps for your circumstances. Contact us today to learn how we can assist you and your business through these complicated times.
