Small Business Bankruptcy: What You Want to Know But Don’t Want to Ask

As a small business owner, it can be difficult to ask questions about filing for bankruptcy. In some cases, you might not know what to ask. In others, you might feel uncomfortable showing how little you know about the process. Of course, you aren’t a Miami bankruptcy litigation attorney, so being unfamiliar with the bankruptcy process is completely normal.

In this article, we’re covering common questions about small business bankruptcies. Hopefully, the information in this article will answer some of your questions and help you feel more confident about your next steps. With that said, there is no substitute for legal advice (and there are no dumb questions), and we strongly encourage you to speak with a Miami bankruptcy litigation attorney at Edelboim Liberman if you need to know more about pursuing a reorganization or liquidation.

What is a “Reorganization” in Bankruptcy?

A “reorganization” is a type of bankruptcy under Chapter 11 focused on keeping the business afloat. Rather than selling off the company’s assets and winding it down, a reorganization bankruptcy focuses on consolidating the business’s debts and developing a payment plan that is both manageable and sustainable long-term.

What is “long-term”? The answer to this question varies but is typically in the range of one to five years. In any case, at the end of the process, the business will be out from under its unmanageable debt load and will be able to move forward with newfound financial stability.

What is a “Liquidation” in Bankruptcy?

While a reorganization bankruptcy under Chapter 11 focuses on keeping the business afloat, a “liquidation” bankruptcy under Chapter 7 focuses on bringing the business to a close. As a result, this is not a preferable option for many small business owners. But liquidating doesn’t necessarily mean selling everything, and if you are ready to move on (or try again), then filing under Chapter 7 could provide the financial freedom you need.

With that said, going through a liquidation will have implications for your future business endeavors—at least for the next several years. Thus, before you decide to pursue a liquidation under Chapter 7, it will be well worth speaking with a Miami bankruptcy litigation attorney about the other options you have available.

Is There a Special Type of Small Business Bankruptcy?

Yes, there is a special type of small business bankruptcy. There are actually two types of small business bankruptcies, though today the most popular option by far is reorganizing under Subchapter V.

Subchapter V is part of Chapter 11. If your small business is eligible to file under Subchapter V (and most small businesses are), you can reorganize your company’s debts without meeting all of the stringent requirements associated with a traditional Chapter 11 filing. The reorganization process under Subchapter V is significantly more streamlined—and significantly less costly—and, as a result, it is a viable option for many struggling small businesses in Florida.

Can a Small Business File for Bankruptcy if It is Still Operating?

Yes, you can file for bankruptcy if your small business is still operating. It is a common misconception that a business needs to be failing before its owners can consider filing under Chapter 11. The purpose of filing under Chapter 11 (or Subchapter V) is to save the business—and if your small business is struggling financially, the sooner you take action, the better.

Is It Ever Too Late to File for Bankruptcy as a Small Business?

Technically, it is never too late to file for bankruptcy as a small business. However, if you wait until your company is facing foreclosure and lawsuits from its creditors, then filing under Chapter 11 (or Subchapter V) may not offer nearly the same level of financial benefit as filing earlier in the process. With this in mind, if you are starting to have questions about filing for bankruptcy, now is the time to speak with a Miami bankruptcy litigation attorney about the options you have available.

If My Small Business Files for Bankruptcy, Will This Affect My Personal Credit?

The short answer is, “It depends.” Fundamentally, filing a business bankruptcy case under Chapter 11 or Chapter 7 does not affect the business owner’s personal credit (unless the business owner is a sole proprietor). However, if you signed any personal guarantees or have taken on other personal liabilities in the course of operating your small business, then you may need to consider the consequences that filing for bankruptcy will have for you personally.

How Much Does a Small Business Bankruptcy Cost?

This is another extremely common question that does not have a straightforward answer. The costs involved in pursuing a small business bankruptcy depend on several factors, including the complexity of the business’s finances and whether the business files under Chapter 7, Chapter 11 or Subchapter V—among many others. When you sit down for a free consultation at Edelboim Lieberman, our attorneys can provide a preliminary assessment of the costs you are likely to incur.

Generally speaking, however, if pursuing a small business bankruptcy makes sense, then this will be the most cost-effective option you have available. Reorganizing your small business’s debts can result in substantial savings in the long-term.

Will Our Clients or Customers Know if We File for Bankruptcy?

In most cases, your clients or customers won’t know that your small business has filed for bankruptcy unless you tell them—assuming you file under Chapter 11 or Subchapter V. While business bankruptcy filings are public record in Florida, a client or customer would have to go searching to find your small business’s court records.

Schedule a Free and Confidential Consultation with a Miami Bankruptcy Litigation Attorney

Do you have more questions about filing for bankruptcy as a small business owner in Florida? If so, one of our attorneys will be more than happy to meet with you one-on-one. To schedule a free and confidential consultation with a Miami bankruptcy litigation attorney at Edelboim Lieberman, please call 305-768-9909 or inquire online today.