Should I File For Chapter 11 Bankruptcy If My Business is Insolvent?

If your business is unable to handle the debts that it has acquired, then you may wonder, should I file for bankruptcy and, if so, what type of bankruptcy should I file? Like an individual, a business has the option to file for bankruptcy to deal with debts. The type of bankruptcy that is appropriate for your business will depend, however, on a number of different factors. (See also Differences Between Personal and Corporate Bankruptcy).

Filing for Business Bankruptcy

When filing for business bankruptcy, there are a few major things you should consider:

• Is your business a separate legal entity, like a corporation, or is it a sole proprietorship? If your business is a sole proprietorship, then you and your business are essentially considered the same legal entity. Filing for business bankruptcy is the same as filing for a bankruptcy personally and vice versa. You generally won't be eligible to file chapter 11 bankruptcy if your business and your personal assets are mixed, since chapter 11 is more appropriate for a business with an entirely separate legal identity
• Can your business be saved? The purpose of a chapter 11 is to restructure the assets and debts and financial picture of a company so that the company may remain open. Generally, a trustee is appointed to manage business assets and the business has to present a plan for reorganization that shows how it intends to become a fully functional business and pay off creditors. If you can't do this (and doing this can be expensive and difficult) or there really is no way to make your business profitable, then you may want to think twice about a chapter 11
• How much can you afford to spend? A chapter 11 is generally the most expensive type of bankruptcy to file, as far as legal costs, court costs and other costs associated with setting up a plan to restructure the business. If your business has over $1 million in assets, then the filing requirements become even more complex.

If you have a small business that you are running yourself, other options- like a chapter 7 to liquidate debts or a chapter 13 to restructure them- may be much more appropriate for you than a chapter 11.

Getting Help

The best thing to do when dealing with a business bankruptcy is to talk to a lawyer immediately. Your attorney can help you to decide how best to save your business (or whether your business is worth saving) and can assist you in filing all of the appropriate paperwork to get the right type of bankruptcy moving in the courts.