Most anyone who has ever launched a business, regardless whether it was a micro-company or large-scale corporation, understands that the bottom line often remains in the red until the ball gets rolling in the right direction. Perhaps you took out a loan to start your company or borrowed money to expand or cover some other expenses once your business was up and running.
Such things are par for the course in business, but they can lead to financial problems if you face a decrease in sales or some other issue negatively impacts your ability to pay back the debt. If your finances are currently a bit off track, try not to lose hope as you are definitely not the first businessperson to encounter financial challenges. There are often several solution options; the key is knowing how to determine which option is most viable in your particular situation.
Business structure matters
Are you a sole proprietor? Did you enter a partnership when you launched your business? These issues affect what creditors may do to try to collect debts you owe. By reviewing the following facts regarding business structure as it affects debt, you may be able to determine the best course of action to seek a solid solution to your current financial problems:
- As a sole proprietor, you are personally responsible for business debt. This means a court can hold you financially liable for money you owe creditors on a business loan.
- If you have one or several partners, each of you is responsible for any debt your business incurs.
- If you registered your business as a limited liability company, it protected you from personal liability against business debt.
- You can forfeit LLC personal liability protection in several ways, so it's critical you make sure you have not done so if you're concerned about such issues in relation to a current financial crisis.
California business owners often stay closely connected to advisers who are well versed in business and commercial laws so they have quick access to experienced guidance if a business debt problem arises. In addition to understanding how your particular business's structure may affect whether you are personally liable for business debt, you may also want to learn more about debt relief options that are available for your situation.
Several types of bankruptcy may lead to restored financial stability
Filing for bankruptcy in business doesn't necessarily mean you're going out of business. Some forms of bankruptcy allow you to avoid creditor litigation while keeping your doors open to the public. The following list shows basic types of bankruptcy that may apply to your circumstances:
- Chapter 13 bankruptcy is a plan that allows you to restructure your finances and arrange a temporary alternate payment schedule. You must show proof of reliable income and the ability to repay your debt over time.
- You may qualify for Chapter 7 bankruptcy, which would likely liquidate your personal assets in order to apply the converted value of those assets to business debt repayment.
- Other types of bankruptcy, such as Chapter 11, may be viable options in your situation as well.
One type of bankruptcy may be more advantageous than another in a given situation. For instance, while many debts are dischargeable through bankruptcy, certain types carry certain exemptions that prohibit certain debts from discharge. Chapter 13 typically includes more dischargeable debt opportunities than Chapter 11. Determining which debt relief option works best for you may be the ticket to a strong financial future.