Will I Have to Close Down My Business if I File for Bankruptcy?

The economy has been in a state of flux since early 2020, when the coronavirus hit the United States. Many businesses shut down after facing a lack of business due to quarantines and social distancing. Now, almost two years later, businesses are still suffering financially. 

Your business may be suffering, as well. You may be considering bankruptcy, but know there are risks involved. 

You may be concerned about having to shut down your business if you file for bankruptcy. Will you have to? The answer to this varies based on your situation and the type of bankruptcy you file. What you can and cannot keep after a bankruptcy discharge can vary. Here is a look at what you can expect when you file for bankruptcy.

Chapter 7 Bankruptcy

The type of business you have will determine whether or not you must close the business. If you have a sole proprietorship and you file for personal bankruptcy under Chapter 7, you can keep the business open. This is because you are keeping your personal and business finances separate. However, when a corporation or other type of company files for Chapter 7 bankruptcy, the business must close. 

Chapter 11 Bankruptcy

If you want to keep your business open, file for Chapter 11 bankruptcy. Many businesses, such as airlines and retailers, have filed for bankruptcy under this chapter, only to remain open. This is because Chapter 11 bankruptcy allows you to restructure your business. You can continue running your business while operating under a debt repayment plan. Staying open is beneficial to your creditors, since you are making money to repay them.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is similar to Chapter 11, but it is for individuals only. Business entities such as partnerships, corporations, or LLCs cannot use Chapter 13. Sole proprietors can use it to reorganize personal and business debts, which can help keep their business afloat. However, you will need to agree to a repayment plan, as the business itself will still be liable for the debts.

Should You Keep Your Business Open?

Even if you are allowed to keep your business open, should you? The biggest factor is simply whether or not your business has a reason to exist. Does your company have too many competitors? Is your business in a suffering sector (such as brick and mortar retail)? If you answered “yes” to either of these questions, then it may be better to liquidate your business and shut it down so you do not accumulate even more debt. 

Also, consider the state of your business. Is it still successful, but simply overburdened with debt? Or have sales declined dramatically and the business is in need of an overhaul? Keep in mind that bankruptcy will not help a failing business recover. 

Discuss Your Case With an Indiana Bankruptcy Attorney

When you think of bankruptcy, you may think of a failing business. However, sometimes businesses continue to stay open, but if you are a small business owner, this can be extremely difficult to do.

If your business is facing financial difficulties, the Indiana bankruptcy attorneys at Whitten & Whitten can help you understand your options. Schedule a free consultation by filling out the online form.