Could Bankruptcy Actually Save Your Business?
The world of business is no walk in the park. It’s fast paced, fiercely competitive and in an age in which customers have more choice than ever before they can afford to be extremely capricious. While thriving competition and free enterprise may be great for the economy as a whole, they can be troublesome when trying to build your own business up from nothing. All it takes is a few fiscal missteps and you may find that your business is forever on the back foot. Cash flow is very often the difference between success and failure in business, and when the cash is tied up in late payments, bulk purchases of stock or equipment that doesn’t aid productivity as much as you’d hoped, a worrying chain of events begins. One unpaid debt has a domino effect on the next, causing your debts to spiral out of control. Before you know it, you’re spending your days playing catch up on your debts,struggling to regain stability rather than leading your business with the strategy and foresight it deserves.
If only there were some way to get off this dizzying merry-go-round of debt and credit before the liquidators come knocking at your door. There may just be a highly unorthodox solution that will allow you to recover while still being able to keep your doors open…. Declaring bankruptcy.
Doesn’t declaring bankruptcy mean my business has failed?
Not necessarily. If your business is a limited company, while your fate and the business’ may be inextricably tied, in the eyes of the law you may be separate entities. If your business is a limited company you may be able to use an application for bankruptcy as a tool to leverage some more time to get your affairs in order without needing to liquidate your business. Even if you are a sole trader, you may be able to use a declaration of bankruptcy to limit your personal losses. You will need a lawyer to help with this and you can find out here what a lawyer can do to help you. They may even be able to help you with other forms of debt relief.
Chapter 13 or Chapter 11?
Filing for protection from creditors under Chapter 11 or 13 of the U.S. bankruptcy can buy you the time you need get back on your feet if you and your lawyer honestly believe that your business has the potential to become profitable again. The kind of application you make depends on your business structure. Even if you ultimately decide to close your doors, a Chapter 11 bankruptcy can help you to manage the liquidation so you can reduce your personal losses. A Chapter 11 also requires a formal, court approved turnaround plan which will allow you to salvage your business.
A Chapter 13, on the other hand, is best for sole traders and will help you to repay your debts over 3 to 5 years.
How your business benefits
Filing for bankruptcy protects your business from creditors who may otherwise attempt to liquidate your business. Of course you will still have to repay your debts but a bankruptcy application gives you the legal ability to reduce and / or delay your repayments.
Ultimately, your creditors want their money back and they’ll be happier to get it back more slowly when under a structured and court approved plan. This will allow you to keep your doors open and salvage the operations and reputation of your business.