A person can put all their effort into their small business, but sometimes due to market conditions, consumer demands or other unforeseen issues, a business in Virginia can repeatedly fail to turn a profit. If this goes on long enough a business owner may decide that their best option is to file for bankruptcy. In general, there are three types of business bankruptcies. It is important to understand what these are so that informed choices can be made.
One option is Chapter 7 bankruptcy. This bankruptcy may be preferable if it is inevitable that the business must close its doors. Also known as liquidation bankruptcy, it may be appropriate when a business's debts are so great that restructuring them isn't possible. Chapter 7 bankruptcy may also be an option to consider if there are no substantial business assets to reorganize. After the business's assets are liquidated and creditors are paid off through the Chapter 7 bankruptcy process, any remaining debts may be discharged. Keep in mind that partnerships and corporations cannot have debts discharged through Chapter 7 bankruptcy.
If a business can realistically keep its doors open, despite its debts, then Chapter 11 bankruptcy may be an option. Through Chapter 11 bankruptcy, the business's debts will be reorganized, and a plan will be established for repaying them. If the court approves the plan, the business can have as many as twenty years or more to repay its creditors. These are complicated cases that can take more than a year to confirm. However, they do allow a business to keep running despite its debts.
Finally, sole proprietorships may be able to pursue Chapter 13 bankruptcy. Like Chapter 11 bankruptcy, in a Chapter 13 bankruptcy a court-approved repayment plan will be established allowing the business to continue operations while still paying back its creditors. Chapter 13 bankruptcy is generally a consumer bankruptcy, but it may still be an option for sole proprietors, who are legally liable for the debts of their business.
As this shows, business owners who fall on hard financial times have options for paying back their debts. However, this post only provides general information on this topic and should not be the basis for any major business decisions. Business law professionals may be able to provide the advice business owners facing bankruptcy need to determine what steps to take moving forward.