When a business files for bankruptcy, it can be a difficult and stressful process that involves several steps and considerations. Businesses and individuals both can apply for bankruptcy to get some aid in paying off or getting free from their debts. Please continue reading to see how businesses go about the process of filing for bankruptcy.
What is Bankruptcy?
Definition
Bankruptcy is a legal process in which an individual or business that owes money to creditors is relieved of some or all those debts, depending on the type of bankruptcy filed. Most businesses file for bankruptcy when they shut down. most of the time the lenders don’t necessarily get the money back. this all depends on the type of bankruptcy.
Types of Bankruptcy
If you’re looking to file for bankruptcy, don’t get confused by the many types that are available. Most generally, the ones that are used are chapters 7, 11, and 13.
- Chapter 7 is used essentially to liquidate your assets. The court provides you with a legal advisor who studies all your documents and pays off whatever is available to the creditors.
- Chapter 11 may allow you to work around your debts to be able to pay them over time depending on amount and priority.
- Chapter 13 allows you to create a plan or an income generation system that allows you to create a payment plan to off all creditors over some years. Once again this may also be over time and priority.
Of course, each type of bankruptcy has its own set of rules and benefits so it’s important for a professional to consider which one is best for you. it can depend on the size of your business or even the size of your debt.
Is it Worth It?
Yes, bankruptcy can provide businesses with relief from all or most of their debts. But there are also downsides to filing for bankruptcy. the business can heavily negatively impact its credit score and lose many of its assets if not all.
How Can a Business go Bankrupt?
Economic Factors
A business can go bankrupt due to a variety of factors. The most common reason is that the business simply isn’t profitable anymore. A business’s costs could be too high, consumer patters might have changed, or there may be general economic downturns.
Internal Factors
there could be many internal factors that have led to a business’s own demise. Internal factors such as mismanagement, fraud, or failure to adapt to changing market conditions can also lead to a business’s financial downfall.
Signs of Financial Distress
There are several warning signs that a business may be in financial distress, including missed payments, decreased revenue, and increasing debt. maybe the debt had piled on too much and the business would just go deeper in loss if it tried to continue.
How Does a Business File for Bankruptcy?
Preparation
Before filing for bankruptcy, a business must gather and prepare all necessary financial documents, such as tax returns, bank statements, and debt information. this will be needed when you must meet all your creditors in court to show them what you can or cannot afford to pay.
Choosing a Bankruptcy Attorney
A business shouldn’t necessarily be required to represent itself. You can hire a lawyer who is highly experienced in cases like yours and in your region as well. For example, if you are living in New Jersey, it is advised that you find a NJ bankruptcy lawyer that is well-versed in bankruptcy laws.
Filing for Bankruptcy
All you’re left with is the last thing to do! Once a business has prepared all necessary documentation and chosen an attorney, it can file for bankruptcy. It can do this by submitting a petition to the bankruptcy court. After a court order, all your debt payments or the ones left after declaration will have to be forgiven.
Conclusion
Applying for bankruptcy can be stressful yet a reliving process which explains why so many companies are doing so. Understanding the very basics of bankruptcy could be enough to help you recognize when it is necessary to do so. Most importantly, if you or your business are experiencing financial distress, it’s worthwhile to seek the guidance of a bankruptcy attorney to ensure that you navigate the process correctly.
