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What should I know before filing bankruptcy?

While filing for business bankruptcy can be disheartening, it is also the right choice for many business owners faced with mounting debt. Bankruptcy allows you to get a handle on the financial fallout, which may be impossible to do on your own.

Like all business matters, it helps to be informed about the process before entering into it. USA Today explains the essentials of business bankruptcy, so you can make the best decisions to get your finances on the right track.

Types of business bankruptcy

Most business owners choose between Chapters 7 and 11, which function very differently. With Chapter 7, the business will be closed and its assets liquidated to pay off debt. With Chapter 11, corporations are allowed to reorganize their debt in order to pay back creditors. If you are a sole proprietor with personal liability regarding business debts, you will also be privy to Chapter 13. This option allows you to develop a repayment plan, similar to Chapter 11.

Loss of property

With Chapters 11 and 13, business owners will be able to retain the property they own, provided they keep up with the payments mandated by their reorganization plan. With Chapter 7, primary personal property, including vehicles and homes, will be exempt. However, that is only if you are filing Chapter 7 personally. If you are filing on behalf of your business, it is likely most of the property will be liquidated.

Impact on credit score

While a bankruptcy will stay on record for ten years, you can begin to repair your credit score in the first few years after filing. Additionally, having excessive debt that you are not able to pay will also have a negative impact on your credit score, so bankruptcy may be in your best interest if that is the case.

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