Filing for bankruptcy for your business can help you get back on your feet. The effects will vary depending on which type of bankruptcy you file. The types of procedures are named for the chapter in the Bankruptcy Code that describes them. Business bankruptcy may be filed under Chapters 7, 11, 12 or 13 of the Code.
Bankruptcy law offers two general ways of eliminating or repaying debts. The way it works depends on the way your business is set up and on which type of bankruptcy you file. Chapter 7 bankruptcy cancels business debts, leases, court judgments and medical bills if you own the business by yourself or with a partner. Corporations can also file under Chapter 7, but their debt will not be eliminated. Under Chapters 11 and 13, you must set up a plan to repay at least some of your business debts.
Liquidation, Reorganization or Repayment
Depending on which type of bankruptcy you choose, you may be able to keep your business running. Under Chapter 11, you must reorganize the business and repay at least some of the debt over time. Chapter 13 also allows you to keep the business running, but you must pay off some of the debt within three to five years. However, Chapter 7 bankruptcy forces you to close the business and sell most of your property.
Effect of Bankruptcy on Credit
Your business has its own identity if it is incorporated, so filing bankruptcy will only affect your personal credit report if you took out credit in your name. For example, if you signed a business credit card agreement or took out a business loan in your own name, you are personally responsible for that debt. Even if all of the debts are in the name of the corporation, you may have problems getting credit in the future with vendors who were not repaid in full.
Effect of Bankruptcy on Credit Score
Even if you must file bankruptcy under your own name, there is a limit to the effects on your credit. If you file under Chapter 7, your personal credit report will show information about the bankruptcy for 10 years.
If you file under Chapter 11, it will show for seven years. The law surrounding business bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.
A Business Bankruptcy Lawyer Can Help
The law surrounding secured, unsecured and under-secured claims in business bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.