How Bankruptcy Can Save A Small Business

Small business owners are the backbone of the American economy. Unfortunately, we have seen many small businesses fail especially during this pandemic era. Many small business owners are facing mounting debt, including unpaid rent, loan payments, and bills. For business owners who are struggling to survive, bankruptcy may be the answer.

There are two types of bankruptcy most suited for small businesses: Chapter 7 and Chapter 11 bankruptcy. Chapter 7 bankruptcy allows a small business to liquidate its assets and use the proceeds to settle its debts. The bankruptcy court will appoint a trustee to manage the sale of assets and ensure that creditors are paid off to the extent of the funds that are generated by the sale.

Chapter 11 bankruptcy, on the other hand, allows a small business to reorganize its finances and operations with the aim of paying off its debts over time. The business remains operational under the control of its owners, but under the supervision of the bankruptcy court and its creditors.

When a small business files for bankruptcy, a stay is put in place that halts any attempts by creditors to collect debts. The court may allow the business to continue operations while it sorts out its finances. If the business is going through Chapter 11 bankruptcy, it may take several months to restructure. During this period, the business may choose to close under-performing branches, renegotiate leases, and eliminate non-essential expenses.

Once the bankruptcy is discharged, the small business can start rebuilding its credit. This may include paying off any remaining debts, negotiating with suppliers, and establishing a solid payment history. With improved cash flow, a small business can build up its reserves and even invest in new equipment or hire additional employees.

Bankruptcy can be a hard and scary decision, but for some small businesses, it can be a lifeline. By filing for bankruptcy, small business owners can get back on their feet and take charge of their finances. With the support and guidance of an experienced bankruptcy lawyer or financial adviser, small business owners can weather the storm and emerge stronger and more profitable than ever. So, if you manage a small business that’s struggling to stay afloat, do not hesitate to reach out to a Hidalgo County bankruptcy lawyer to discuss options and find the best course of action.