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Should your business file Chapter 7 or Chapter 11 bankruptcy?

On Behalf of | Jul 12, 2017 | Chapter 7

If business is no longer booming, it may be time to consider bankruptcy — but first you need to take some time to consider your options.

First, take a hard look at your business.

Ask yourself the following questions about your business in order to determine if it is just going through a hard time or genuinely dying.

— How long has it been since you generated anything new? Innovation is often the name of the game and if your business is no longer producing anything new, it may have run its course.

— Does your business have too much competition? If you aren’t offering anything unique, there may be too much competition in your area to survive.

— What’s your company’s reputation? Look at your online reviews. If your online reviews are bad, that can really hurt business — around 88 percent of consumers trust online reviews and almost 40 percent read them regularly.

— How is your cash flow? Do you have too much product sitting around on shelves growing dusty? Are invoices going unpaid? If your cash flow is poor, it could be an issue of mismanagement.

Once you look at these factors you can decide whether it’s time to simply shake things up and change something about your business or time to close the doors for good and start something new.

Second, consider your bankruptcy options.

If your business is really over, you likely want to file Chapter 7, which is often called “total liquidation.” Once you file bankruptcy, a trustee will take over the remaining assets held by the business and sell off whatever can be sold in order to try to satisfy as much of your outstanding debts as possible. If there’s anything left over, the remaining money would go to preferred shareholders or folks who made an unsecured investment into the business. If nothing is left over, the remaining debts are absolved.

If your business is just in a slump, you may be able to go through a Chapter 11 bankruptcy instead. Chapter 11 bankruptcies are often referred to as “reorganization bankruptcies” because companies often come out of them drastically changed but healthier. Again, a trustee will take charge — but the company is ultimately still going to repay some or all of its debts over time.

An attorney experienced in bankruptcy can provide you with more information.

Source: Investopedia, “What are the differences between chapter 7 and chapter 11 bankruptcy?,” accessed July 12, 2017