Stuff To Know About Business Bankruptcy
According to reports from the SBA, chapter 11 business bankruptcy filings from 1987 to the year 2000 show a decline in small business bankruptcies. The small business industry is just so robust that of approximately 23.7 million business tax returns filed, and 885,000 new small businesses opened, only 10,000 were forced to file for bankruptcy. But what happens if you happen to be one of the unlucky ones? Or more importantly, what if it is your first time to experience this temporary downturn? What is the best thing to do under the circumstances?
The first question that first-time entrepreneurs ask when they file for business bankruptcy is, what happens to the corporation they set up? Normally, since the corporation is a legal structure or entity that is different from the shareholders, it will not be affected by the filing. What would be contested however in a business bankruptcy are the shareholder shares in that corporation since they are considered as corporation assets; they have a market value representing the net worth or value of the corporation as a whole. The question of who is liable is important to distinguish whom the creditors will try to collect money from. When one files for corporate or business bankruptcy, the filing does not directly affect everyone. However, if the shareholders themselves or the officers of the company are personally liable for the financial debts of the business, then the courts will certainly allow creditors to collect from them.
Some companies or corporations are Sub s corporations and the application of the bankruptcy code in their business bankruptcy filings are the same as any other corporation because this Sub chapter S corporation or Chapter C corporation is but a designation for tax law purposes and the legal structure of one is standard. But owners of sub Chapter S corporations must be careful that upon filing for business bankruptcy, they should be judicious in declaring any income earned after the filing because that is still taxable to the shareholders.
One misconception among first-time business bankruptcy filers is that they could file only on business debts and not on personal ones. The truth here is that when one files for business bankruptcy or any kind of bankruptcy for that matter, all of one's assets must be included. However if you file for Chapter 13, it is possible to separate debts incurred only for business and that you can pay them as necessary. You can also ask individual debtors to acknowledge or reaffirm certain debts as business or personal. Once you have filed for business bankruptcy and would like to move on as quickly as possible to get up on your business feet, be careful to choose another endeavor that will not utilize assets from your former business such as equipment or receivables. You can only use them if they are exempted items. Some business owners on the other hand did not lose any time in getting back on track by incorporating another new company right before filing for business bankruptcy. There is nothing illegal here except that you must be prepared for some scrutiny by the court. There might be questions on the value of this new corporation based on its stock or assets it may have which should not be assets merely transferred from the bankrupt corporation.
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