Business owners dread bankruptcy. However, it is often a vital business (and legal) decision you must make. One of the biggest concerns about filing bankruptcies is how they might affect a California business.
The effects of bankruptcy will vary depending on the type of bankruptcy you're filing for and the business's organizational structure. That's why most business owners and partners seek guidance from accountants and California bankruptcy lawyers before proceeding.
So, let's look at the different ways bankruptcy can affect other types of business:
How Chapter 7 Bankruptcy Affects Difference Business Structures In California
Declaring bankruptcy under Chapter 7 will liquidate and shut down the company. The effects depend on the type of company you have, which is as follows:
1. Sole Proprietorship
In the case of a sole proprietor, the business automatically files if you, the owner, decide to file for Chapter 7 bankruptcy. Because you are a sole proprietor, this is the situation. Nothing distinguishes you, the owner, from the company.
A sole proprietor's personal credit standing is at stake when they declare bankruptcy because there is no separation. This could have an impact on you personally as well as on any future business endeavors you could try to start.
2. Partnership
It can become a little complicated in a partnership. The trustee in a Chapter 7 bankruptcy will sell the company's assets because a partnership is a legitimate business.
If the assets are insufficient to satisfy the creditors, the company may be forced to close, and if you were personally responsible for part of the debt, your personal assets might be in jeopardy.
The assets of the other partners are initially unaffected by the bankruptcy, though. Any assets the surviving partners hold must be liquidated through litigation brought by the trustee.
3. Corporations
Some corporations have opted to declare bankruptcy under Chapter 7. When a corporation decides to file for Chapter 7 bankruptcy, all of the corporation's assets become liquidated. As a result, they can be used to pay off debts.
Additionally, the company will shut down if this type of bankruptcy is filed. You will also need to file for Chapter 7 as an individual if you personally guaranteed or signed for any corporate debt.
4. LLCs
An LLC can file for Chapter 7 bankruptcy like a partnership or a corporation. However, it is also necessary for the LLC's members to submit individual Chapter 7 bankruptcy petitions.
What About Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is the best option for companies with many assets. Although Chapter 11 bankruptcy allows your company to reorganize and restructure, the procedure is frequently challenging and expensive.
For instance, all assets become a bankruptcy estate once the bankruptcy petition has been filed. Additionally, the estate separates from the family and receives its own Employer Identification Number.
As a result, complicated tax matters and files result from its inception. The bankruptcy statute permits small firms to file. Still, you need to hire an accountant and a Los Angeles bankruptcy lawyer to help you with these issues. Chapter 11 may be the best option for you if you decide to file for bankruptcy on behalf of your company to maintain operations.
4 Tips On Filing For Bankruptcy In California
Bankruptcy might be a considerable undertaking for a lot of business owners. Here are a few tips that will help you get through them:
Get guidance from accountants in California
- Consult with a California business lawyers
- Don't be afraid to file for bankruptcy
- Don't put off filing for bankruptcy for too long
- Recognize that it is one method of debt relief
The end result is what matters most in the end. Some companies have declared bankruptcy and survived, so you shouldn't be too afraid of doing it.
Of course, it will affect your business, but you can manage it. Remember to consult your Los Angeles bankruptcy lawyer before taking the next step.
Hire A California Bankruptcy Lawyers Near You
1000Attorneys.com is a California Bar Association Certified Lawyer Referral Service that refers you to a fitting Lawyer best suited to handle your case. You may contact us through our 24/7 live chat (or complete our case details submission form) for a free initial consultation.
0 Comments