What If I Have to File for Bankruptcy?

Filing for bankruptcy is not a fun experience.

It’s frustrating, sad, and quite literally taxing. On top of all that, i’s important that your founders know when to make the final call to file for Chapter 7, 11 or 13.

Here are the options

• Chapter 7 (Business Bankruptcy) is the “best” choice if your business has no future (I know it hurts to read, but please keep going). This method is used when the debts that you have incurred are so large that restructuring them is not possible. This is also known as liquidation, and ultimately means that the business is “over.”

• Chapter 11 (Business Reorganization) is an option for businesses that have a future. In this option, the business outlines a plan with a court-appointed trustee to reorganize the business to deal with its creditors. After this happens, the creditors vote on the plan, and if they find that it is fair and equitable, they will approve it…hopefully. This option is not ideal, and can often take a long time.

• Chapter 13 (Personal Bankruptcy) isn’t really fun either. This is also a reorganization bankruptcy typically reserved for customers, but also can be used for sole proprietors. Essentially you file a payback plan with a bankruptcy court, where the amount you owe, earn and the assets you have are all considered and put on the table. Careful here…

Can I ever have a small business opportunity again?

Yes! The reality is that most people who file for bankruptcy don’t lose anything exept their debts. In the future, you’ll be able to buy anything you can afford! Many people can refinance or even open a new line of credit while in their bankruptcy. In case you’re really worried, check out this list of famous people that have filed for bankruptcy and came out on top.

Will you ever be able to get credit again?

Yes! The myths are incorrect about being doomed forever. Filing for bankruptcy wipes your slate clean, so to speak. If anything, getting rid of debt puts you in a great position to handle more credit. In fact, you’ll likely get tons of offers for new credit cards soon after your bankruptcy. Many people refinance their homes just a few weeks after they get their discharges. Keep your chin up, and prepare for a fresh start!

What does this mean for my company?

Depending on which of these options you decide (or are forced) to take, how you deal with your company and consolidation will vary.

If you file for Chapter 7, it’s over. Employees will need to be let go, all existing inventory will need to be sold off and that cash will need to go to creditors. Chapter 11 leaves hope for your business and employees, but it’s not easy and can definitely take some time. Finally Chapter 13 likely means the end of your company too, so in the end you should cross your fingers for the option of Chapter 11.

In the end, filing for any kind of bankruptcy is a drag.

You’ll feel as though you have let down your friends, investors, customers, and employees. But the reality? You have not. Businesses fail all the time. Nine out of ten startups fail. You are not alone. You took a risk in starting something that meant something important to you, and it didn’t work out. Move on, and start something else.

As long as you keep your head up, and stay persistent and push onward, you’ll have yet another opportunity to build a company. Good luck with round two!