Filing for Bankruptcy as a Small Business Owner

 Posted on December 08, 2023 in Bankruptcy

As a small business owner, facing severe financial struggles can feel overwhelming and stressful. You may reach a breaking point where bankruptcy starts to seem like the only way out from crippling debt obligations and creditor threats. Filing can provide temporary relief and protection. However, bankruptcy is not a cure-all solution and carries significant downsides as well. 

Carefully evaluating both the potential benefits and drawbacks and considering all alternative options first enables you to make the most informed choice for your business. A Texas lawyer can help you weigh the decision and help you.

The Financial Benefits of Filing for Bankruptcy

Filing for bankruptcy can provide financial relief for small business owners who are shouldering overwhelming company debt. It gives you time to reorganize your finances, catch up on debt, and create a plan to start paying it down going forward. Chapter 11 bankruptcy allows you to continue operating your business under the protection of an “automatic stay,” so you do not have to worry about creditors seizing assets or filing lawsuits while working to get back on track. 

The process enables negotiation with lenders on debt reduction, better interest rates, forgiving penalties or late fees, and creating reasonable monthly payments at lower rates over longer repayment terms. This takes tremendous short-term financial pressure off small business owners struggling to meet constant monthly financial obligations.

Downsides to Consider Before Filing

While bankruptcy can be a lifeline for struggling small businesses, there are also downsides to factor in before filing. It will negatively impact your credit score for up to 10 years, making it much harder to qualify for loans, lines of credit, or other business financing in the future. Since you now represent a higher risk, vendors and other companies may change payment terms to require advanced payments for goods and services.

There will likely be substantial attorney fees and legal/court costs over the entire bankruptcy process, which may further strain your finances. While under bankruptcy protection, most financial decisions and expenditures require court approval, so you lose significant autonomy over your company’s financial choices. You will still be responsible for ongoing obligations like payroll, taxes, loans, etc.

Making the Most Informed Decision

Filing bankruptcy holds appeal for small business owners who feel overwhelmed, constantly threatened by creditors, and struggle with relentless financial burdens. It can provide critical temporary relief to regroup your business. However, given the long-term disadvantages, pursuing other options first, like refinancing debt, negotiations with vendors, equity investments, or bringing in financial expertise, may be preferable. 

Contact a San Antonio, TX Bankruptcy Lawyer

A bankruptcy process can be complex, especially if a business is involved. A Schertz, TX bankruptcy attorney can help you get through the steps more easily. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.