Bankruptcy is not a fun topic to discuss, but it is necessary for you to understand what it is and how it will work to the benefit of your business if you are considering filing, especially if you need a Chicago bankruptcy lawyer to help with your case. If you have a small business that is struggling financially, and you do not have enough resources to pay your creditors, bankruptcy may be an option for you to consider according to our friends at Therman Law Offices, LTD.
What Is Considered a Small Business?
According to the Small Business Administration, depending on your industry, a small business could be defined as one with a maximum of 250 employees or a maximum of 1,500 employees. According to the U.S. Bankruptcy Code, a “small business debtor” is a business with total debts of $2 million or less.
Factors to Consider When Debating Chapter 11 for Your Small Business
The most common types of bankruptcy filed by small businesses are Chapter 7, 11, and 13. Each type of bankruptcy will have a different, either positive or negative, impact on your business. Sometimes choosing Chapter 11 bankruptcy will have a significant and positive impact on your business.
Traditionally, small businesses refrain from filing for Chapter 11 bankruptcy since it is time-consuming, complex, and expensive. But it is important to note that Chapter 11 bankruptcy stands out amongst the other bankruptcy actions for partnerships, limited liability companies, and corporations since the business can continue in operation if it is seeking to be restructured. It also grants small businesses additional time to file a reorganization plan and renegotiate terms with creditors.
Chapter 11 bankruptcy permits a debtor to restructure its finances through a plan of reorganization that is subject to the bankruptcy court’s approval. The restructuring permits the business to reduce obligations, modify terms of payment, and assist the business in balancing its income and expenses. This permits the business to regain some form of profitability while continuing in operation. Reorganization also permits the business to sell assets or downsize the business, if necessary, to assist in settling outstanding debts.
It is important to note that, when you file for Chapter 11 bankruptcy, the court requires that you comply with a special filing requirement. The court requires small businesses to file:
- A copy of the business entity’s most recent balance sheet
- A statement of operations
- A cash-flow statement
- A copy of the most recent federal income tax return
This requirement grants the bankruptcy court great oversight over Chapter 11 cases filed by small businesses that are not available in other types of bankruptcy proceedings.
Contact a Bankruptcy Law Firm Today
If your small business is struggling financially, bankruptcy may be the best option for your situation. To learn more, call an experienced attorney.