Each business case will be different. Questions to ask include the long-term goals of the owners and plan for the business. The continued viability of a business given its market or industry needs to be answered honestly upfront.
The financial health of the business as measured by cash flow and ability to meet its monthly obligations, or ability to obtain financing to continue to operate, will also be key in determining whether a business can reorganize.
In most cases, creditors do not want to see you go out of business, since they will likely not get paid if you do. A restructuring of your debt with creditors may be an option for a viable business without the last resort of bankruptcy. This is something that you can pursue on your own or with the assistance of an attorney.
If owners have personally guaranteed obligations of the business or pledged their own personal assets as collateral to secure such obligations, the owners will eventually have to pay the debt or sell the collateral if the business cannot. The owners’ personal liability for the debt will need to be addressed.
Sometimes a business may have enough value that it can be sold to settle debts with creditors. This can be pursued through a Chapter 7 in which a trustee would be appointed to sell the business and pay creditors or through a Chapter 11 bankruptcy in which the debtor in possession can propose a plan to liquidate the business.
A sole proprietor of a business may also be eligible for the benefits of a Chapter 13 bankruptcy if they are within the debt limits for such a case. In addition, a debtor in business as a family farmer or fisherman (as defined by the bankruptcy laws) may be eligible to pursue a Chapter 12 case, which has rules similar to that in Chapter 13. Chapter 12 debtors can be an individual or a married couple, a corporation or a partnership.
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