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RESTRUCTURING &
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CHAPTER
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SMALL BUSINESS
BANKRUPTCY

Small Business Bankruptcy – A Possible Solution

Small businesses that are weighed down with overwhelming debt may be wondering where to turn for relief. While keeping up with payments is the ultimate goal of a business, struggling companies are often unable to pay bills when profits are suffering. Even though small business bankruptcy has a negative connotation for business owners, the option can actually be a solution that could mean the difference between a business managing to stay afloat and a business being forced to close its doors forever.

Any small business considering bankruptcy as a way to deal with debt and get back on track should consult a legal professional to talk about the different options available. Small businesses have the choice between filing Chapter 7, Chapter 13 and Chapter 11 bankruptcy.

Chapter 7 bankruptcy is usually a choice that is only used for a business if the business is planning on permanently shutting down. Debts will be completely wiped out, but the company will typically not exist once the bankruptcy process has been completed. While some small businesses do choose this option, there are other kinds of bankruptcy that allow a company to stay in business.

Chapter 13 bankruptcy is specifically used by sole proprietorships. Although there is a common belief that all types bankruptcy completely wipe out debts, this is not how Chapter 13 bankruptcy works. The business will be required to pay certain kinds of debt, such as taxes, according to a payment plan that is prepared by the client and the attorney. The term of the business plan ranges from three to five years, and the bankruptcy is considered discharged when the last payment has been made as long as all payments have been made on time throughout the length of the plan, and all other requirements have been made.

Chapter 11 bankruptcy is used when the intention of the business is to reorganize and continue on with business. The purpose of this type of bankruptcy is for a company to protect their assets when their assets and liabilities are substantial. Some companies will need to choose Chapter 11 bankruptcy because there is a debt ceiling for qualifying to file Chapter 13 bankruptcy, and Chapter 7 bankruptcy typically ends in a dissolution of the business. Because of the complicated process and costly fees associated with a Chapter 11 bankruptcy, any company believing that it is the best option should first discuss the possibility at length with an experienced Chapter 11 attorney.

For more information, please call our office at (831) 753-2200 or e-mail us at Chris@AlliottsLaw.com.
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