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What does business bankruptcy look like?

If you are a business owner and are struggling to meet your goals, you are not alone. The COVID-19 pandemic made life especially difficult for businesses, and many entrepreneurs are wondering whether or not their business will be able to stay afloat. Some may find themselves wondering about the dreaded “b” word: Bankruptcy.

Is it right for my business? What does it mean? What does it actually look like? These are likely just a few questions that fly through your mind when you wonder about that dreaded “b” word. In actuality, business bankruptcy can provide a fresh start. To help answer some of these questions, it is helpful to know that business bankruptcy often takes on one of two forms.

The first, a liquidation, is likely the most dreaded and well-known. In this type of bankruptcy the person or entity in charge of the process, known as the trustee, liquidates the business’ assets and sells them to gather funds to pay off creditors. Any remaining debt is basically forgiven, and you can move on with your life. This is known as a Chapter 7 bankruptcy. Although not ideal, if the business was structured wisely it should not impact your own, personal finances. This means you, as a business owner, could move forward and look towards other entrepreneurial endeavors.

The second common form of bankruptcy for businesses is more of a restructuring. This type, known as a Chapter 11, allows the business to essentially reorganize its debt and financial obligations into a plan that is easier to manage.

These are the two big options, but there are others. There is also a Chapter 12 option specifically designed for farmers and fishermen or a Chapter 13 for sole proprietorships, to name a few. Finding the right option for your future financial success will depend on the details of your current situation and future goals. But take heart — bankruptcy is not nearly as dreaded as you may first think. Instead, it can provide the fresh financial start you need to move forward.

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