When Does My Business Need to File for Bankruptcy?
No one wants to think about bankruptcy, but unfortunately, sometimes it may be the best solution for a struggling business. To determine if filing for bankruptcy is the right choice, it is important to understand what filing entails, as well as what situations might give rise to considering such an extreme financial measure.
What is Bankruptcy?
Bankruptcy is a legal process that allows businesses and individuals who are unable to pay off their debts to either have those debts completely discharged or restructured over time with payment plans. There are different types of bankruptcy for businesses and individuals, but all types require the filer to provide detailed information about their assets and liabilities, as well as their income and expenses. This helps creditors determine how much money can be repaid.
When Should a Business Consider Filing Bankruptcy?
Businesses should only consider filing for bankruptcy when other options have been exhausted or the debt far exceeds the company’s ability to repay it in a reasonable amount of time. Other options may include restructuring debt through loan modifications, refinancing debt at better terms or having creditors agree to accept less than full payment in exchange for eliminating late fees or interest charges. If none of these options are available, then bankruptcy may be necessary in order to protect the business from further damage due to mounting debt obligations that cannot be met.
Types of Bankruptcy Available
The two types of bankruptcy most commonly used by businesses are Chapter 7 (liquidation) and Chapter 11 (reorganization). With Chapter 7, most of the company’s assets are sold in exchange for cash that is then used to pay off creditors; any remaining debt is discharged by the court. The company ceases operations immediately upon filing Chapter 7. If you have incurred personal debt on behalf of the business, however, be aware that your obligations for those debts may live on after business bankruptcy and after your business has ceased operations. If you have taken on personal liability for loans or other debts for the business, you may want to consider filing personal bankruptcy under Chapter 7 protection to attempt to eliminate these debts on yourself.
With Chapter 11, the company continues operating while attempting to reach an agreement with its creditors regarding how much will be paid out over time and which obligations will be forgiven in exchange for future payments being made on time. Chapter 11 business bankruptcy essentially allows for a clean slate for the business, after reorganizing the company’s debts.
The Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Help Protect Your Business
Filing for bankruptcy can often be seen as a last resort option for businesses who find themselves in financial distress due to overwhelming debt obligations they cannot meet without outside help from creditors or other sources. If your business is facing extreme financial trouble, discuss your legal options with the Philadelphia business lawyers at Sidkoff, Pincus & Green P.C. Call 215-574-0600 or contact us online. We proudly serve not only Philadelphia, but also Pennsylvania and New Jersey.