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Sometimes the small business fail and small business bankruptcy happen. One should take the assistance of an attorney while declaring bankruptcy of your small business. Business bankruptcies are described as liquidation and reorganization of business and funds.

Small business can be categorized in the following ways and they can file under three kinds of bankruptcies specified by the federal law. Firstly we need to understand the business forms that exist in small business section.

Sole proprietorships are legal extensions of the owner, and it is the owner who is responsible for the assets and liabilities of the firm. This kind of business can take bankruptcy protection under chapter 7, 11 and 13.Corporation and partnership firms are different from single proprietorship companies and these kinds of small business can file for bankruptcy under chapter 7 or 11. The partners are not direst owners of the company.

Types Of Bankruptcy

It is important to understand these chapters specified by the bankruptcy law of United States before declaring small business bankruptcy. These chapters are bankruptcy protection laws specified by the court for the convenience of the debtor and creditor.

Chapter 7

When the owners and partners of a firm feel that the company does not have substantial assets to repay the debts, only then is small business bankruptcy filed under this section. In other words the business is over and no restructuring is possible. Trustees are appointed by the bankruptcy court and asked to take possession of the assets like offices, warehouses, stock etc and these assets are distributed among the creditors.

Chapter 11

This chapter can be of use to those small businesses which have future. The companies which file for small business bankruptcy make a plan for reorganization, to deal with creditors and repayment of debt. If the plan is approved by the creditors and court, the company can restructure itself and repay loan in instalments over a specified period.

Chapter 13

Only sole proprietorship companies can file for bankruptcy under this chapter. When the owner files foe small business bankruptcy, will have to submit a plan for repayment to the court. The amount of repayment is dependent on the debt and the kind of assets the owner possess. One can save his or her personal assets like house under this section. It is important to consult a business bankruptcy attorney before filing for bankruptcy.

The only question is when to file bankruptcy. Remember a bankruptcy attorney is your best bet when it comes to answering all your questions.

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