Bankruptcy may seem like a sealed ending for business; this can also be a viable solution if your business is struggling from the COVID-19 pandemic.
With the COVID-19 pandemic breaking out, several businesses are expected to close down this year. In fact, it is expected that 40% of small businesses in the US will shut down its operations soon. If you are currently suffering the same fate, perhaps it is time to file for bankruptcy. Sure, it may sound scary and very negative, but this move can actually provide a fresh start for your business. Bankruptcy may seem like a sealed ending for business; this can also be a viable solution if your business is struggling right now. Still not convinced? Learn more about the benefits of filing for bankruptcy on our post below.
Bouncing Back From Bankruptcy
You might have asked yourself while reading this, “is it really possible to turn things around after filing for bankruptcy?”. Truth be told is, yes, it is definitely possible. History has shown a number of bankrupt companies who were able to get back on their feet again. Some of these notable companies include Chrysler, Marvel, General Motors, Sbarro, and Six Flags. All of these companies were able to recover from bankruptcy successfully which only proves that anything is possible.
Type of Bankruptcy
At this point, you might be wondering what exactly bankruptcy is and why is it an efficient alternative option of saving your business. Bankruptcy helps you get rid of or pay off your debt under the Federal Court’s guidance. It can either be an opportunity to restructure or liquidate your assets. In general, there are three types of bankruptcy: Chapter 13, Chapter 7, and Chapter 11.
Chapter 13 is geared for individuals or those who possess sole proprietorship whose goal is to reorganize your business structure. Filing for Chapter 13 will allow you to continue operating while you are paying off your debts. On the other hand, filing for Chapter 7 is only necessary if the business has no viable assets, or does not have the capacity to repay its debts. Lastly, filing for Chapter 11 is an option for partnerships and corporations whose aim is to reorganize the company while continuing the operations under a court-appointed trustee.
Discharging of Debts
One of the advantages of filing for bankruptcy is the discharge of debts. In bankruptcy court, discharge means your debts will be forgiven. By forgiven, this means that creditors will no longer be able to execute any form of collection action. The discharge usually wipes out most types of debt. However, if you have a lien, then there is still a possibility that your creditor might take away your property. As bankruptcy is a tricky subject, is it best to seek expert guidance to avoid this from happening. Bankruptcy lawyers from TL Brown Law Firm San Diego put great emphasis on how important it is to take classes that provide step by step guidance in managing bankruptcy filings. The great thing about having professional legal advice to go through with you during the whole process is that you will be able to keep your property.
As mentioned earlier, bankruptcy does not always refer to an ending. Another benefit of bankruptcy during trouble times is the opportunity for your company to reorganize. Once your reorganizational plan is approved by the court, you will actually be able to continue operating and allow you to pay off your debts at a later date. Through reorganization, you will be given ample time to restructure and improve your company’s profitability. During this time, you may be able to allot your time and resources in rebuilding your finances and recalibrating your operational management. When you reorganize, you will be able to reduce your spending, concentrate on key projects or products, and improve your overall competitive advantage.
Extend Your Time to Pay Off Debt
Time is extremely valuable and one of the things that filing for bankruptcy can provide is a time extension. Although it has its own negative connotation, bankruptcy should be taken as an opportunity to improve your business strategies without the pressure of paying off your debt as soon as possible. The pressure of meeting due dates can be very overwhelming, especially if your business is not performing well. Filing for Chapter 11 or Chapter 13 allows you to focus more on the more important aspect of your business which is rehabilitation.
As surprising as it may be, filing for bankruptcy can actually offer your company a competitive advantage. When you are granted the time to reorganize and pay off your debt at a later date, you can spend more time improving your business strategies. However, a well thought of reorganization plan is highly needed for this to work. When you are focused on improving your company’s overall performance, you are a step closer to success. Given the time that was granted to you, you will have the freedom to evaluate your business strengths and weaknesses and use these two to your advantage.
Avoid Personal Risks
When your company is struggling financially, you might end up cashing out on your own to cover the running expenses it requires. Every business has its own set of expenses, but you also have to remember that you have your own set of personal expenses as well. When you continue paying for your company’s regular cost while it is failing you might end up struggling to pay for you and your family’s expenses. The worst-case scenario is if you keep your business running you might end up losing personal belongings just to make ends meet.
Renegotiate Business Contracts
Another advantage of filing for bankruptcy is the opportunity to renegotiate your contracts. This means that you may also even be able to renegotiate your contracts in favorable terms. As you reorganize your company, you will also be able to reject contracts that do not meet your needs.
In this day and age, filing for bankruptcy comes with a number of benefits. It offers the opportunity to gain a competitive edge, manage your finances better, and stay secured in the industry. Bankruptcy may seem like a daunting idea at first, but it can also be a practical solution during these testing times.