We here at Shaw Defense understand that building a successful business is exceedingly difficult in today’s economic climate. Despite the fact that it’s entirely possible to make all the right moves and offer a product or service that customers actually want, one wrong business decision could turn your once successful business upside down. It can become saddled with burdens, having to contend with a large amount of business debt leading into bankruptcy. You may be averse to the idea of filing for bankruptcy. Keep in mind that people including Donald Trump, Henry Ford, Milton Hershey, and Walt Disney all filed before becoming successful legends. It happens. But there are certain types of bankruptcy that are best for business debt that you can be aware of. If your company must file bankruptcy, you will need to do a Chapter 11. However, we find that many entrepreneurs have personal guarantees on debt, and so this brings us to the need to look at personal bankruptcy mechanisms. The following will provide a detailed look at these below.
Personal Business Debt and Chapter 7 Bankruptcy
There are two basic types of bankruptcy that are often used for small business owners that have a lot of debt. Though Chapter 7 bankruptcy is the primary of these, there are some situations wherein Chapter 13 bankruptcy is necessary. In regards to Chapter 7 bankruptcy, this type is used during situations where you are personally liable for all debts and qualify based on the means test. Business owners that fall under a general partnership or sole proprietorship will be able to get all of their debt wiped clean with Chapter 7, if they qualify.
However, a LLC or corporation will be liable for the business debts if the debts were so signed, because an entity is viewed as a person in the eyes of the law. If the business owner isn’t personally liable for the debts of their business, they would generally file a different type of business bankruptcy known as Chapter 11. There are also times when businesses that file for Chapter 7 are required to close their business, at least for a short period of time, though this isn’t always the case with businesses that don’t have many assets. Those individuals who don’t wish to close down their business for any period of time should instead consider Chapter 13 bankruptcy, or better yet speak to Judge Shaw.
Chapter 13 Bankruptcy and Running Your Business
When dealing with lots of business debt and bankruptcy, Chapter 13 is oftentimes the route to go if your company has assets. This type of bankruptcy allows business owners to keep all of the assets they hold, depending upon ownership percentages in the business, but may require they reorganize their business as well. The bankruptcy period will last for three to five years, during which the business owner must pay a small amount of debt back every month until the repayment plan is over. The amount of debt that is owed is determined primarily by the amount of income that the business makes, but there are many factors. Once the allotted debt has been repaid, any debt that is left over and is unsecured can be discharged.
Is Bankruptcy the Only Option for Business Owners?
Common advice is that bankruptcy is the only option when you’re facing financial pressure in your business, as agreed upon by this business lawyer. This is not the case. Jed Shaw is a licensed bankruptcy attorney that understands just how difficult running a business is. He has developed an alternative to filing, and this allows entrepreneurs to continue running their business while also dealing with the creditors. While most businesses end up filing for Chapter 7 or Chapter 13 bankruptcy, he offers an alternative solution that is much better and more beneficial than filing for bankruptcy. For more details about this solution and any other questions you may have about your personal situation, feel free to contact Jed Shaw at 713-750-9038 at any time!