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Small business and bankruptcy

December 11, 2012 | Comments: 0 | Views: 234

If your small business has been moving through a financial crisis and you are struggling with debt consolidation, you may wish to explore your options besides filing a bankruptcy. There are different types of bankruptcies that may be an option for those owning a small business. But the option typically known as ‘Business Bankruptcy’ may not be the right option for you.

Bankruptcy options for small business.

The way your business has been organized is going to make a significant difference in how bankruptcy works. If your business is a sole proprietorship or a partnership, then your business is going to be considered as one and same legal entity with you. This means, your business bankruptcy can seriously impact your personal assets and credit standing.

  • Chapter 11 Bankruptcy: This is the only option for large businesses or businesses with significant debt and assets. A sole proprietorships filing for this kind of bankruptcy is a rare example. This only makes sense for a business that is considered separate from their owners. Chapter 11 Bankruptcy is a sort or reorganization bankruptcy that allows you repay your debts without affecting business assets or operations. However, it is very costly and complicated to file for a business bankruptcy.
  • Chapter 13 Bankruptcy in Houston: This is one of the most common and an ideal option for small business bankruptcy. This is a consumer type of bankruptcy filing and you and your business both will be included in it. Your assets wouldn’t set to mortgage in this bankruptcy, lest you show that you have sufficient income that will allow you to repay your debt in a stipulated period of time. For sole proprietors or self employed individuals, this requires an income proof from the past six months and tax returns and other documentation to prove your ability to pay off your debt. Under this form of bankruptcy the businesses are given a certain period of flexibility to pay off their debts.
  • Chapter 7 Bankruptcy: Chapter 7 bankruptcy is an option for those individuals who don’t have sufficient income to repay any portion of their debts. Again you are to document proofs that show your inability to consolidate your debts. For filing chapter 7 bankruptcy you are to pass the means test where your annual income is evaluated and is that is lesser than the state’s median income, you qualify for the Chapter 7 Bankruptcy. Under this kind of bankruptcy, the individual and business assets are sold to pay off the creditors. But before that a bankruptcy trustee will categorize your assets into exempt or non exempt assets. You are obliged to keep the exempt assets while the non exempt assets will be set on mortgage to revive income to pay to creditors. The individual has a good chance in this case to save several of his valuable assets. But since many assets will be traded off, it will make it hard for business to operate and finally result in its liquidation.

Before you file for a bankruptcy, it is essential that you consult some good bankruptcy attorney.

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