If your business is getting buried under debt and you can’t see any way to get back on track, you may not have a lot of options left. When should a Michigan business consider filing for bankruptcy? If your business is deep in debt without the cash flow to cover your obligations, bankruptcy may be the best option.
Chapter 7 bankruptcy will liquidate your assets to cover your debts. Chapter 11 bankruptcy will reorganize your debts and allow you to remain in business. To decide between Chapter 7 and Chapter 11, you must determine whether you have a path to make your business profitable again. A Michigan bankruptcy lawyer can help.
Advantages and Disadvantages of Filing for Bankruptcy
The issue isn’t just whether your business is in debt, but whether you can see a realistic way to get out of debt. If you have substantial debts but a realistic plan for catching up, then the disadvantages of bankruptcy may outweigh the advantages.
Advantages of Chapter 7 bankruptcy include:
- Discharging your debts
- An automatic stay on all collection activities, including repossession and foreclosure
- The ability to close a business that wasn’t doing well and make a fresh start
Advantages of Chapter 11 bankruptcy include:
- The opportunity to reorganize so you can repay your debts and stay in business
- A stay on collection activities
- The opportunity to get your business back on track
Disadvantages of Chapter 7 bankruptcy include:
- Liquidation of your business assets to pay your debts
- Permanent closure of the business
Disadvantages of Chapter 11 bankruptcy include:
- Damage to your credit score
- Damage to your business reputation
- Limited access to credit for several years
Signs That It May Be Time to File for Bankruptcy
It may be time to file for bankruptcy if:
- You cannot cover your loan payments, payroll, and payments to suppliers
- Your debt is growing, and you can’t see any way to catch up
- Your business has negative cash flow, and you spend more money than you take in
- Leading customers have cancelled their contracts or stopped doing business with your firm
- Your industry has poor prospects for the foreseeable future
- Creditors are suing you for the money you owe them
- You face asset seizure or foreclosure
Choosing Between Chapter 7 and Chapter 11
If you decide that it’s time to file for bankruptcy, the next step is to decide between Chapter 7 and Chapter 11. According to the U.S. Bankruptcy Code:
- Chapter 7 bankruptcy is also known as liquidation bankruptcy. The court will liquidate your assets to discharge your debts, and your business will close.
- Chapter 11 bankruptcy is a reorganization bankruptcy. You will work with your creditors to create a plan that will enable you to partially repay your debts.
If you want to stay in business, choose Chapter 11. If you no longer want to stay in business or don’t see any realistic way to become profitable again, choose Chapter 7. A bankruptcy attorney can help you choose which type of bankruptcy to file.
Contact a Michigan Bankruptcy Attorney Today
If your business is getting behind on debts and you’re thinking about bankruptcy, the first step is to consult an experienced bankruptcy attorney who can answer your questions and give you reliable advice.
Marrs & Terry, PLLC, is a Michigan law firm dedicated to helping our clients get a fresh start. We know how stressful it is to be overwhelmed by debt, and we can help you get out of debt and move on with your life. If your business needs to file for bankruptcy in Michigan, contact Marrs & Terry, PLLC, right away to get started with a consultation.