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Navigating bankruptcy as a small business

It is never easy to discuss the option of filing for bankruptcy. At Ledford, Wu & Borges, we regularly work with small business owners in Illinois who are looking to alleviate financial distress. If you have found yourself in such a position, it is important to know how the different types of bankruptcy could work for you.

You might want to consider filing for a Chapter 7 bankruptcy if you do not think your business can continue. Any assets your business has will be sold to pay off debts, with the remainder of debts discharged.

The U.S. Small Business Administration points out that if you believe your business has a future, you could file for a Chapter 11. This will enable your operations to continue under a plan for reorganization. You will have to propose a plan that will provide for all your interests and claims. Creditors to whom you owe money will be able to either accept or reject your plan. There are three types of businesses that tend to file for Chapter 11, and those are the following: 

  •        Partnerships
  •        Corporations
  •        Sole proprietorships

It is possible to propose a plan that will liquidate all your assets through a Chapter 11 filing. Some businesses find liquidating under Chapter 11 optimal to doing essentially the same thing in a Chapter 7 filing.

Finally, you could opt for a Chapter 13 bankruptcy, which will put together a plan for how your business will be able to repay its debts. For the most part, only sole proprietor small businesses would file for this option.

You should know that once you file for any form of bankruptcy, an automatic stay will apply to creditors so they can no longer try to collect on your debt. For more information on small business bankruptcy filings, please visit our page on filing for Chapter 11.

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