If you are a business owner in debt, you are not alone. According to CNBC, US households have over $16,000 in credit-card debt alone because many rely on credit cards to pay for day-to-day necessities. Ignoring the bill collectors will only increase your money woes, not mention your anxiety. The sooner you face up to the situation, the sooner you will be able to regain your personal and business financial equilibrium.
The first step is to discover the extent of your financial problems. Begin by collating your latest bank statements, tracking down all the paperwork that’s probably scattered somewhere in your attic and opening those bills you have been ignoring. If you realize that your personal or business debt is much higher than the amount of money you have to cover it, the only solution you can resort to is to consult several bankruptcy attorneys and file for bankruptcy.
Bankruptcy is a legal lifeline for business owners drowning in debt. Individuals and businesses alike petition courts to release them from liability for their debts. In a majority of cases, the request is granted.
Types of Personal Bankruptcy
Under the U.S. Constitution, business owners have the right to relieve all or part of their debts when they can no longer meet the obligations to creditors and lenders and whose circumstances are unlikely to change in the foreseeable future – even with alternative lending options.There are several types of bankruptcy for which individuals can file, the most common being Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Individuals are allowed to file for Chapter 7 which is the most frequently petitioned form of bankruptcy. Best thing about a this type of bankruptcy is the chance to dismiss your personal debt. Additionally, you are allowed to protect or exempt key assets.
By filing for Chapter 7, your assets will be sold by a court-appointed bankruptcy trustee. The money will go toward paying the trustee, covering administrative fees and repaying your creditors if there’s enough funds.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy involves repaying some of your debts to have the rest forgiven. This is an option for people who do not want to lose their property or those who do not qualify for Chapter 7 due to their income being too high.
However, there’s a limit on the amount of personal or business debt an individual owes in order to qualify for Chapter 13. You also need to design a three-to-five-year repayment plan for your creditors. Once you successfully complete the plan, the remaining debts are erased.
When to Declare Bankruptcy?
It is never a “perfect” time to declare bankruptcy for business, but there is a good rule of thumb to bear in mind when you’re thinking about it. If it will take more than five years for you to pay off all your debts, it might be time to file for bankruptcy.
If any combination of mortgage debt, easy credit card debt, medical bills and business loans has devastated you financially and there’s no relief in sight, bankruptcy might be the best remedy.
Declaring bankruptcy will also put a stop to the pestering phone calls, letters and other attempts to contact and collect from you. It will provide you with an opportunity to start a new business with a clean slate. But make sure not to repeat financial mistakes from the past if you want your future to be debt free.