Filing for Bankruptcy as a Small Business

Kansas City Small Business Bankruptcy

Is your Kansas City small business going through hard times? You’re not alone, and you have options.

Many people don’t realize that bankruptcy does not inherently mean that a company plans to permanently close its doors. In fact, many times it’s how small businesses can stay afloat amidst financial struggles, here in Kansas City and around the globe.

Unfortunately, though, it’s not as simple as just “declaring” bankruptcy.

There are many factors to consider when deciding whether to declare bankruptcy for your small business. It can be tricky to navigate your options, especially since not all businesses are eligible for each type, nor are all beneficial for you, depending on your unique circumstances.

When weighing the overall pros and cons of bankruptcy, consider the major differences between each option.

Bankruptcy Overview: Which Chapter Should You File?

With regard to small businesses and bankruptcy, here are the key differences between Chapter 7, 11, and 13:

Chapter 7 Bankruptcy

This option is best if your business does not have steady income and you plan to close up shop.

Chapter 11 Bankruptcy

This option is best if you want to save your business and can make smaller payments to creditors, rather than closing down completely.

Chapter 13 Bankruptcy

This option is similar to Chapter 11 but is only available to businesses owned by a sole proprietor.

Please note that the statements above are a broad generalization. Filing for bankruptcy is complicated; it’s best done through the help of a trusted, bankruptcy attorney.

More Info on Bankruptcy: Chapter 7 vs. 11 vs. 13

Chapter 7

If your company is lacking cash flow and needs to close its doors, Chapter 7 may be the best route for you.

Chapter 7 is a liquidation plan. The major benefit of this type of bankruptcy is that it allows small businesses to discharge their debt and quickly get back on their feet, perhaps with a new business!

However, not all debts will qualify, and in order to pay off as much debt as possible, the trustee sells your nonexempt property and assets.

Keep in mind that some of your assets are not tangible items that you can sell. This can work to your advantage in some cases.

For example, think of a service and skills-oriented entrepreneur, such as a yoga instructor or a handyman. As part of the liquidation process, the trustee handling their debts and assets wouldn’t be able to sell their talent, nor force them to work for someone else.

Therefore, you can feel more at ease knowing that the heart of your livelihood can still be a thriving source of income, just in a different way than before.

However, be sure to speak with a Kansas City bankruptcy attorney throughout the process to make sure you can make the best-informed decision.

Chapter 11

If your small business simply needs to make smaller payments to creditors, has ample cash flow, and can remain open, Chapter 11 bankruptcy may be a good option for you.

Chapter 11 bankruptcy can help by restructuring multiple types of debt. This can include leases, priority tax debt, secured debt, and unsecured debt. Chapter 11 also helps protect your business assets.

By restructuring your debt, your business will be able to continue with normal operations, while simultaneously meeting your tax obligations. Through Chapter 11 bankruptcy, you’ll be able to renegotiate terms of repayment through mutually acceptable grounds.

However, filing for Chapter 11 bankruptcy as a small business can be risky, expensive, and time-consuming – especially without the help of a skilled attorney.

Chapter 13

If you are the sole proprietor of your small business, you may be eligible for Chapter 13 bankruptcy.

Chapter 13 bankruptcy may be a good option for you if you’re wanting to keep your business running – and it’s your business and yours alone. Again, in order to file for Chapter 13, you must be the sole proprietor.

Under Chapter 13 bankruptcy, you can keep your assets while paying your debts off through a repayment plan. This usually lasts between three and five years, as compared with Chapter 7, which is done after three to four months.

Explore Your Bankruptcy Options for Small Businesses in Kansas City

Is bankruptcy the right move for your small business? Let the team at Kentner Wyatt help you navigate your options. Connect with us today and schedule a free consultation.