Many small business owners have been there…Debt is piling up. Cash flow is almost stalled. Customers are not paying invoices in a timely manner. And the money coming in is most definitely not matching up to the money going out. Especially now, during this very difficult economic climate, small businesses are feeling the impact of inflation, supply chain problems, and labor issues. As such, many are considering whether or not to file bankruptcy. Filing for bankruptcy is certainly nothing to take lightly as a small business owner. The question is, should you. What ramifications will filing for bankruptcy have on your company? Will you still even have a company after filing? In this article, we cover some of the advantages and disadvantages of filing for bankruptcy.
Your Goal By Filing for Bankruptcy
First off, before you make the very difficult decision to file, examine your goals when it comes to filing for bankruptcy. That is to say, are you looking for a fresh start? Or perhaps, you realize that it may be time to close your doors for good and pursue a new career path. Maybe you are looking to put your business on a different course altogether.
You also want to think about the type of business you have. For example, if you are a sole proprietor, then you might go with a personal bankruptcy versus a business bankruptcy. This will take care of all relevant debts. If you are an LLC or a corporation, you could potentially file separately. However, you still may be personally liable in some instances. This is where working with an experienced bankruptcy attorney really is going to be a necessity.
The Automatic Stay
While for many people, filing for bankruptcy seems like a very daunting prospect, keep in mind that it does stop creditors from coming after you. Odds are, if you are in this position, you have accrued a great deal of debt. Creditors may be hounding you and knocking at your door constantly. When you file for bankruptcy, it stops all collections actions. This is called an automatic stay. Once the bankruptcy is discharged, then all or most of your debts may have been dismissed, thereby giving you the fresh start that you were potentially after.
Benefits of Filing for Bankruptcy
The word bankruptcy has historically had a negative connotation. Business owners and individuals alike try to avoid it at all costs. There are however important benefits to filing for bankruptcy, benefits that may enable you to keep your business going.
1. There’s a chance you can get rid of your dischargeable debt. One of the main reasons why people file for bankruptcy in the first place is to get rid of the mounting debt. Keep in mind, that the debt does have to be dischargeable. And again, here is where a lawyer will help navigate through the process and determine which debts might be dischargeable under bankruptcy.
2. You have a chance to improve your credit score. If you are thinking about filing for bankruptcy, your credit score is probably not in the best shape anyway. While bankruptcy does stay on your credit record anywhere from 7 to 10 years, it does give you a fresh start. Bankruptcy gives you a chance to begin rebuilding that credit and avoid some of the mistakes that you made which got you into financial trouble in the first place.
3. You receive financial counseling. Part of most bankruptcy proceedings is that the debtor needs to go through a financial counseling process. This process can teach you better ways to manage funds and alleviate debt.
4. There are assets you can hold onto. Under certain types of bankruptcies, there will be assets that you can still hold onto. Meaning, that you don’t necessarily have to give up everything that you and the company owner. A bankruptcy attorney will help you to identify what is allowable under bankruptcy.
Disadvantages of Filing for Bankruptcy
1. It stays on your credit report for multiple years. Generally speaking, bankruptcy will show up on your credit report anywhere from 7 to 10 years depending on the type of bankruptcy. This means that when you go to apply for loans or credit cards, for instance, the bankruptcy will be visible to lenders. This could in turn pose a bit of a hurdle for you in terms of getting the money that you need.
2. Some debts are not dischargeable. A number of tax debts for example cannot be discharged under bankruptcy. Certain support orders are also not just chargeable. Generally, student loans cannot be discharged under bankruptcy. Check with a lawyer to see what exactly may or may not be dischargeable.
3. It can adversely affect joint accounts. If there are any joint accounts, creditors can go after the other person on the account or a cosigner. So you definitely want to keep this in mind as far as who can be negatively impacted as a result of your bankruptcy proceedings.
4. There’s a stigma attached. For many people, filing for bankruptcy is something that comes with a certain stigma. That is to say, they’re hesitant to do so because bankruptcy appears as this black cloud that follows you around. While this isn’t necessarily the case, it’s a conception that is ingrained in many people’s minds.
First Union Lending Can Help
We offer a variety of loan programs for small businesses across the United States. From short-term loans to SBA loans to merchant cash advances, we have a financing solution for you. Even if your credit score is not where it should be, we might still have funding options that can work for you. Call today and let’s get started.