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Small Business Bankruptcy Filing

Filing for bankruptcy of a small business is similar to a personal filing in many ways. The advantages of choosing one type of bankruptcy over the others will depend on the structure of your business, your intentions during and after the filing, and the type of debts you have. You will be required to attend credit counseling as described in before making filing any type of bankruptcy, at which time you will have a clearer picture of what your options are. For businesses, the available bankruptcy options are Chapter 7, 11 and 13. Typically, companies choose Chapter 11 or 13 because it can continue to operate even as it is paying off its obligations under a repayment plan. It is possible for a business to file for Chapter 7, especially if it is a sole proprietorship and has a lot of unsecured and secured debt tied to a personal guarantee. However, debt discharge under Chapter 7 also means the business will have to be dissolved as assets will be liquidated (including stocks, office equipment, and accounts receivables) and continued operations will not be possible. If you are planning to close the business anyway and you have not personally guaranteed any of the loans i.e. corporation, you will not even have to file for bankruptcy. You can simply stop operations and walk away. Debts are typically categorized into secured i.e. truck used for business or unsecured i.e. credit card debt. Under Chapter 7, you are likely to lose the collateral for secured loans unless it is an exempt asset i.e. primary home, while under Chapter 11 and 13, you will have a chance to pay your secured debt off under more favorable conditions to avoid repossession or foreclosure. With unsecured loans, it is the priority debts such as back taxes that you have to pay first, regardless of the...
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