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Is bankruptcy helpful for small businesses

Is your small business firm on the threshold of financial failure? The proprietor has to know precisely when to make that call. This is not an easy decision and a business owner should first tire out all other options. After the verdict to close the firm, actions have to be taken such as hiring a bankruptcy public prosecutor and filing for bankruptcy.

While most small-business owners begin their new ventures with a dream of huge success in the market, many comprehend that there are momentous risks to starting and running a business. Although some small businesses succeed, others inevitably fail and must find a way to repay debts owed in a financially responsible manner. Poor financing is another reason small businesses fail, falling right behind poor management. Sufficient funding is vital to the success of small businesses.


Bankruptcy: is a course of action you go through in federal court that is designed to help your business eradicate or repay its debt under the shelter of the bankruptcy court. Business bankruptcies are usually described as either liquidations or reorganizations depending on the type of bankruptcy you take.

There are three types of bankruptcy that your business may file for based on its business form. Sole proprietorships are legal extensions of the owner. The owner is responsible for all assets and liabilities of the firm. A sole proprietorship can take bankruptcy by filing for Chapter 7, Chapter 11, or Chapter 13.Corporations and partnerships are legal entities separate from their owners. They can also file for bankruptcy protection under Chapter 7 or Chapter 11.

Your business is in monetary trouble. You need to figure out whether bankruptcy is indispensable or helpful for your situation. Because many small businesses are lacking the powers and immunities of a corporate enterprise the business and its owner are lawfully the same. This means those amounts outstanding of the business are personal liabilities of the business owner. Therefore when an unincorporated business fails, its owner is liable for a blend of business and personal debts.

The most important change made to U.S. personal bankruptcy procedures under the 2005 restructuring is that the defaulter no longer have an automatic right to file for bankruptcy under Chapter 7. Instead they must undergo a test, which compares their income

To the median income level in their states. If debtors income per month is more than $100 above the monthly median income in their states, then they may be forced to file under another personal bankruptcy process Chapter 13. The proposed bankruptcy restructuring would have a Chilling effect on incentives to start or own small businesses.

Chapter 13: which has no fresh start Debtors in Chapter 13 must use part of their post-bankruptcy earnings for five years to repay their debt. The repayment requirement is based on a formula developed by the Internal Revenue Service for delinquent taxpayers.

When filing bankruptcy for small business: Consider the structure of the business and the reasons for filing before determining what legal actions to take. Seek legal advice and counsel that can explain the requirements and constraints associated with filing bankruptcy. If you have decided that your small business has to file bankruptcy, then you need the help of bankruptcy attorneys. Most importantly, you must choose the right one.

For more information:

San Antonio Business Attorney : James Montgomery is a Texas Superlawyer who helps business people to plan to avoid trouble and maximize profits.

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