Now that the coronavirus has wreaked havoc on the lives of global citizens, it is also anticipated to permanently shut down numerous small business firms within the next few months. Once you check all the forecasts of the COVID-19 update, all that you’ll find is a wave of business bankruptcies to hit the market in no time.
As per a poll conducted by the American Chamber of Commerce, more than 50% of the country’s 40 million small businesses could wind down within the next 6 months due to this pandemic. This is a crisis that will have an adverse impact on this generation’s economy. An advocacy group for small businesses reportedly mentioned that the country will lose a considerable part of the small business sector.
Filing bankruptcy can help business owners stay afloat
If you have a small business and you’re struggling to make ends meet, you can finally think of filing bankruptcy to remain afloat. However, you need to keep in mind that all businesses can’t file or reap the benefit of all the types of bankruptcies available. Here are a few of the options:
- If you file Chapter 11 bankruptcy, a business firm with adequate cash flow can remain open and continue paying small amounts to the creditors.
- On the contrary, a business with no noteworthy cash flow can utilize Chapter 7 bankruptcy to close successfully and transparently.
- In some situations, a sole proprietor can keep his business running by filing Chapter 13 bankruptcy or Chapter 7 in case the company only offers services to its clients.
Which is the right type of bankruptcy for your business?
While there is always a local bankruptcy law firm that can give you the right bankruptcy advice, you should still be aware of the type of bankruptcy that you should file.
If you’re a small business owner, it is most unlikely that you’ll file Chapter 11 bankruptcy as this type is usually perfect for the bigger companies that are usually publicly traded. Chapter 11 is the costliest bankruptcy that takes a lot of time. Usually, when you have a high net worth and a regular source of income, you can still think of filing Chapter 11.
In Chapter 7 bankruptcy, all your assets will be liquidated, and hence the business will shut down. This is the easiest form of bankruptcy which is filed by businesses and individuals. The process doesn’t take time and it is not costly. You get the chance to liquidate the assets of your business and move on. While this is one of the most straightforward types of bankruptcy, yet at the same time, you can’t revoke your business at any cost.
When you’re in a situation where you wish to retain your business but you require assistance in straightening your finances, Chapter 13 is the answer for you. Here, you discuss a debt repayment plan with the creditors where they assess your assets, income, and expenses to devise an appropriate plan for you. While you continue with your monthly installments, your business can operate. So, if your business has met a rough patch and you wish to see it succeed in the near future, Chapter 13 is definitely the way to go.
Once you file bankruptcy and wind up your current business, don’t think that you can never start a new one. Gathering money will certainly be tough but it is not impossible. Once your credit score is tarnished, take steps to improve your credit score by managing your finances in the best way. This will take you closer to achieving your next goal.