Declaring bankruptcy is not an easy decision for any business owner. It can be confusing and stressful to navigate the different types of bankruptcy. Filing for the wrong chapter could result in legal and financial consequences.

This blog post will guide you through the different types of bankruptcy available to businesses and help you determine which chapter is right for you. 

Chapter 7

Chapter 7 bankruptcy is commonly known as liquidation bankruptcy. In a Chapter 7 bankruptcy, a court-appointed trustee sells the business's assets to pay off its debts. This chapter is typically the best option for businesses that are not viable and have very few assets. Although it may seem daunting to liquidate assets, it is also a chance to wipe the slate clean and start over.

Chapter 11

Chapter 11 bankruptcy is mainly for larger businesses. It allows the company to restructure its debts and reduce its financial burden so it can remain in business. This chapter is an excellent option for businesses that have valuable assets and ongoing revenue streams. Chapter 11 offers protection from creditors while the business develops a plan for repayment. It requires a lot of legal and financial work but can be a way to save a business from bankruptcy and keep its doors open.

Chapter 13

Chapter 13 bankruptcy is only available to sole proprietorships. It is similar to Chapter 11, but it aims to restructure personal debts instead of business debts. If a sole proprietorship business is struggling with overwhelming personal debt, then Chapter 13 may be the best option. This chapter of bankruptcy is less complicated than Chapter 11 and allows business owners to keep their assets while repaying creditors over time.

Chapter 12

Chapter 12 bankruptcy is designed for small family farmers and fishermen. It allows farmers and fishermen to restructure their debts and continue operating their businesses. This chapter of bankruptcy provides more flexibility and better repayment terms than other chapters. It can be a viable option for those in agriculture or fishing who are struggling financially.

Declaring bankruptcy is a difficult decision for any business owner. However, it can be a way to protect your business and get it back on track financially. Choosing the right chapter can make all the difference. Seeking the guidance of a bankruptcy lawyer can help you determine which chapter is best and ensure that you take the right steps in the process. Remember, bankruptcy is not the end; it is a chance to start anew.

Contact a local bankruptcy attorney for more information.