What to Consider When Considering Bankruptcy for Your Small Business

March 24, 2013

Small business restructurings are often as relatively costly as they are emotionally painful. Clearly, large corporate bankruptcies, like the recent American Airlines restructuring, carry legal and consulting fees in the millions of dollars. However, given the size of American Airlines assets and its potential for future revenue, these fees are just a few small drops in a huge bucket. For a small business, the costs of bankruptcy can swamp revenue and doom the opportunity to bounce back.

 

For many small businesses, the price of Chapter 11 is too high. Legal and consulting fees can extend into the tens and hundreds of thousands of dollars. Without significant financial resources, often in the form of outside equity or creditor financing, small businesses can’t survive the long haul that is Chapter 11.

 

Chapter 13, the cheaper form of small business restructuring, presents many challenges for managers, owners, and stockholders. With your business assets under the supervision of a bankruptcy court, your decisions may be scrutinized. During the restructuring period, your staff would be required to submit monthly reports to the bankruptcy trustee. In general, the fruits of any business upside would go to your past creditors, not to you and your team. Additionally, your business would have to keep up with plan payments.

 

If Chapter 13 is too risky or expensive, then Chapter 7 may be your only option. Liquidation isn’t fun, but it may be the only way for you to bounce back. With your business debts clear, when the time comes, a Chapter 7 liquidation will free you to try again.

 

Want to know more about your legal options? The attorneys at Fears Nachawati understand how to advise you of your options and execute on the decisions you make. Contact us today for your free consultation. We’re ready to give you the help you need. 

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