It can be easy to associate the term bankruptcy with negative connotations. Some business owners may believe that they have failed their company or their families and that, in choosing bankruptcy, they are waving the white flag of surrender. But that is simply not the truth. Choosing bankruptcy can be a freeing, positive option for a struggling business.
Of course, how bankruptcy affects you and your company will depend on several factors—including your own circumstances, your attorney’s advice and which form of bankruptcy is best for your business.
The benefits of chapter 7 bankruptcy
Known as the “liquidation” bankruptcy, chapter 7 bankruptcy involves liquidating your business and its assets. Your business’s debts are then discharged and your obligations dismissed. This form of bankruptcy is the route you would take if shutting the company doors is your best option.
Chapter 7, in ending your business and stopping obligations, may also decrease your personal liability risk. What about your credit score? Well, whether your credit score goes down will depend on the details of your business formation. If you have an LLC, for example, it is not likely that chapter 7 bankruptcy nor chapter 11 bankruptcy will affect your credit score.
The benefits of chapter 11 bankruptcy
Chapter 11 bankruptcy may be your best option if your business’s bottom line is in serious trouble and you need some time and restructuring to become profitable. Known as the “reorganization” bankruptcy, chapter 11 will allow your business to pay back creditors based on a proposed plan.
Not only does chapter 11 bankruptcy give you extra time to restructure your plans, but it gives your business the opportunity to renegotiate contracts, suspend owed bills and even increase your company’s efficiency.