When a business fails and needs to shut down, it might be necessary for the owner to file for bankruptcy. This decision may depend on the company’s current assets, the willingness of creditors to work with you and whether you have the time or ability to oversee the bankruptcy process.
Either the business owner or creditors may start the bankruptcy proceedings. Once it starts, the owner may no longer sell or transfer the business’s assets and creditors are prohibited from pursuing money owed to them from the debtor. It’s also important to understand that limited liability companies (LLCs), corporations and partnerships may file for bankruptcy, but for sole proprietorships, the owner must do so on his or her own.
There are several options available:
- Chapter 7: In this form of bankruptcy, all of the company’s assets are liquidated to pay back creditors. A court-appointed trustee manages this process, which may result in the loss of property for the business or owner. If there is no chance that the business will continue after bankruptcy, this might not be the best option.
- Chapter 11: Filing under this chapter avoids the liquidation of assets, and might be beneficial for business owners who would like to continue their operations in the future. Chapter 11 requires filers to reorganize their businesses so that it can meet its obligations to creditors through the revenue it earns in the future. This can be an expensive and challenging process.
- Chapter 13: In this form of bankruptcy, individuals who earn a regular wage can set up a plan to pay back their creditors over time, typically over the course of three to five years. This also allows filers to save certain assets from liquidation, including their homes and vehicles.
If you own or operate a small business and need to learn more about the bankruptcy process in Florida and which option might be right for you, it’s important to work with an experienced Jacksonville attorney at Combs Greene, PA.
Attorney Shane Herbert also contributed to this blog post.