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According to the Bureau of Labor Statistics, approximately 20% of businesses fail in their first year. Unfortunately, by the fifth year, 50% of businesses close up shop. While this is no issue that any business owner wants to deal with, it can be the harsh reality of owning your own business. Knowing when to take action towards settling your business affairs can be best suited with the guidance of a business lawyer. In some cases, it may be in your best interest to file for bankruptcy. A business lawyer can assist in answering the range of questions you may have when considering whether to file for bankruptcy:
What are signs that I should file for bankruptcy for my business?
As a business owner, it can be challenging to watch your profits diminish. When you are struggling to pay your bills, or even break even, you may be considering how long you can keep your business running. Knowing when to make this call can be difficult. In some cases, bankruptcy may be the appropriate option for your small business. Here are some signs that indicate filing for bankruptcy may be in your best interest:
- It’s normal to have challenging months, however, if your business is experiencing a cash flow problem, unable to pay employees, bills and vendors on time, you may want to consider your next steps. In some cases, you may be able to make key business changes, however, some of the time, it may be in your best interest to consider bankruptcy.
- In some cases, you may be able to close your business without filing for bankruptcy. However, if your personal assets are at risk, you may want to consider filing for bankruptcy.
- If your business and personal assets go hand in hand
- If you are unable to maintain your business through debt consolidation
Are there specific types of bankruptcies that a business should file for?
Working with a lawyer is helpful when determining the form of bankruptcy you should file for. There are a few different options you may have when it comes to filing for bankruptcy. This will largely depend upon the type of business structure you have chosen. Primary forms of bankruptcy for businesses include:
- Chapter 7: for full liquidation of assets that allow business owners to back out of their business with minimal impact on a business owner’s personal assets.
- Chapter 11: allows a business owner to restructure their business by making payments to debtors over time. This allows many businesses to continue operations.
- Chapter 13: when a business owner’s individual assets are intermingled with their business expenses. This is an ideal option for sole proprietorships
How do I initiate the bankruptcy process?
When your business is failing, it can be unclear to know where to turn or how to move forward. Depending on the way you have structured your business, you may have a few different options in terms of bankruptcy. It will be important to first consult with a lawyer who can help you navigate the process. They can work closely with you to determine the type of bankruptcy that is in your best interest and navigate you through the appropriate steps to initiate the process.
No business owner wants to see their business fail. Chances are when you opened your doors you had dreams of experiencing success with your business. Bankruptcy can offer you a fresh start as a business owner. For guidance during what is likely to be a challenging time, contact a business lawyer, like a bankruptcy law firm in Memphis, TN, for bankruptcy information today.
Thank you to the Law Firm of Darrell Castle & Associates PLLC, for their insight into bankruptcy law.