Business Bankruptcy

At what stage an insolvent business files for bankruptcy can depend on the business, it’s owner, and the situation with which it finds itself in; there are some rules that are generally followed.

Often, if s small business finds it owning more than $1,000 and is completely insolvent, it can choose to opt for bankruptcy. Insolvency occurs when a business cannot pay any of its debts, and its assets aren’t even enough to cover those debts.

If a business decides to declare bankruptcy it can do so in three ways:

  • Voluntary Bankruptcy
    This is the most common because it involves a thought through decision by a responsible business owner who has probably seen it coming for some time.
  • Creditor Bankruptcy
    This often occurs when an insolvent business makes an offer to its creditors that they do not accept. After this, the business really has little choice but to go ahead and file bankruptcy.
  • Forced Bankruptcy
    This is not a pretty thing. It occurs when the creditors begin to fear that they will never get their money back so they file a petition with the court to force the company into bankruptcy.

Once the business has filed for bankruptcy all of its assets are handed over to a licensed trustee who will handle the sale of these assets so they can be turned into cash and given to the creditors. Often the business will hire a bankruptcy lawyer to handle their affairs.

While this may cost valuable money in the beginning, it could save thousands of dollars in the future.

Whether the bankruptcy will cripple the individuals involved will depend on whether the business is a small one, a partnership or a large corporation. If it is a small business then the personal assets can be seized. The same can be said for a partnership. This can include your home and your car.

This will also affect you personal credit rating. Which means you may not be able to get a credit card or even a cell phone. So before you file for bankruptcy make sure that you know which assets the government can take.

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