What to Consider When You’re Looking Into Bankruptcy for Your Business


Disclaimer: The following is meant to provide you with a background on the things that you should consider in case you want to file for bankruptcy, and shouldn’t be misinterpreted as actual legal advice. For you to more easily decide if filing for bankruptcy is the best course of action for your business, you would want to consult a licensed attorney who can help you go through the bankruptcy filing process as smoothly as possible.

Any kind of business venture is not without its share of risks, foremost of which is incurring debt from a creditor. While it’s fine to occasionally owe your creditor some money as long as you can pay it back in full, facing business debt too frequently can lead to a financial crisis on your end and cause you to need to file for bankruptcy. But before taking the bankruptcy route for your business, here are some things for you to consider in case you want to pursue that option.

What Things Should You Consider When Filing Bankruptcy for Your Business?

Filing Bankruptcy for Your Business

No one who has their own business wants to file for bankruptcy, especially with the negative stigma surrounding the term “bankruptcy” itself. However, if your business has incurred a massive amount of debt and you’re unable to pay back despite your best efforts to do so, you might find yourself wanting to declare bankruptcy instead. For you to better understand what would happen once you start pursuing it, here are some things that you should consider when you’re looking into filing bankruptcy for your business:

1. There are three types of bankruptcy available for businesses.

If you’ve already exhausted all other options for you to repay your debt, your business may qualify for any of the following types of bankruptcy:

  • Chapter 7 where any assets that you have are seized and sold, the money raised out of their sale is given to your creditor, and your business gets shut down for good.
  • Chapter 11 in which your assets can’t be seized and sold as long as you reorganize your business for it to finally turn a profit that you can use to repay your outstanding debt.
  • Chapter 13 in which you tell a bankruptcy court how you plan on paying back the money that you owe your creditor.

2.  You can file for either Chapter 11 or Chapter 13 bankruptcy and continue running your business at the same time if it’s a sole proprietorship.

If you’re hesitant to let go of your business endeavor, especially after all the hard work, long hours, and capital that you’ve put into it all by yourself, you can declare bankruptcy so that you don’t have to shut it down against your will.

  • If your business is owned and run by you alone as a sole proprietorship, you have the privilege of filing for either Chapter 11 or Chapter 13 bankruptcy.
  • Filing for Chapter 13 bankruptcy can protect any of your personal assets from being seized and sold. However, there are debt limits to consider if you’re planning to file for Chapter 13 bankruptcy. Thus, you would want to make sure that your outstanding debt isn’t greater than the maximum debt amounts allowed by Chapter 13.
  • Most sole proprietorships don’t file for Chapter 11 bankruptcy as it costs time and money. Still, you can file for it if you want to retain your assets and continue operating your business per usual, even if you have to reorganize it.

3. If your business has been set up as either a partnership or a corporation, and you want to continue operating it, you can file for Chapter 11 bankruptcy.

Regardless of whether your business is either a partnership or a corporation, if it’s currently sinking in deep debt, you would want to declare bankruptcy so that you can save it from closure.


  • Filing for Chapter 11 bankruptcy allows you to continue running your business, albeit reorganized, in the hopes that it would generate a profit that you’ll be using to repay your debt.
  • However, Chapter 11 is expensive and time-consuming, not to mention that filing for it doesn’t automatically mean that the court would grant it. Thus, you might want to look for other easier ways to repay your debt instead.

4. You can also declare bankruptcy if you want to close shop completely regardless of how your business is structured.

If you still haven’t repaid the money that you owe to your creditor and believe that shutting your business down for good is the only way to go, you can file for Chapter 7 bankruptcy.

  • If you have to close down your business that’s a sole proprietorship, it can greatly benefit from Chapter 7 which wipes out most of your business and personal debts. The catch is that your assets – including most of your personal ones – can be seized and sold after you’ve filed Chapter 7. The good news though is that you can check your state’s bankruptcy exemptions to find out which assets you can keep.
  • On the other hand, if your business is either a partnership or a corporation that has to call it a day, any debt it had incurred that isn’t personal in nature can’t be wiped clean by filing for Chapter 7 bankruptcy. Thus, you and any of the co-owners of your business should still make sure to pay back the outstanding debt of your business even after most of its assets have been seized and sold.

As someone who runs a business, there would be times when you have to borrow money from somebody else, especially if you need something urgently. But whereas some businesses might find it easy to repay their debts, yours might not do the same as quick – especially if it hasn’t been turning a profit for way too long – which might lead you to consider filing for bankruptcy. However, as the future of your business is at stake, declaring bankruptcy should only be used as a last resort option when all other best efforts on your end to repay your debts have already been exhausted. You might also want to seek the services of a lawyer first who can suggest less drastic alternatives for you to pay back the money that you owe your creditor without having to go the bankruptcy route.


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