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Is your small business ready for bankruptcy? If so, what type?

If your small business is struggling with insurmountable debt, filing for bankruptcy may be the only reasonable option left. However, there are some questions you need to ask yourself before you file.

-- Is this really your only option?

If you haven't tried to work out a solution with your creditors that will allow you to avoid a bankruptcy and get your business back on track, bankruptcy may be premature.

Consider negotiating with your creditors for payment plans, perhaps without interest or penalties. Depending on your field, your creditors may actually have a vested interest in helping you keep the doors open—especially if you have a long-standing relationship with your creditors that's been good up until now.

-- Are you ready to close the business?

If you do decide that bankruptcy is the route you need to take, you have to decide if it's the end of the line for the business or there's a realistic possibility that you can rebuild it into a profitable venture.

If the industry in general has declined or you just can't see yourself putting in the effort it would take, you can file Chapter 7, liquidate the business assets and close the doors. This is a good choice if your interests have changed, your life goals are altered or you're just ready to retire.

On the other hand, if you think this is a temporary problem that you could recover from and you still believe your business could have a successful future, you may want to consider a Chapter 11 action. Chapter 11 bankruptcies are more expensive and time-consuming than Chapter 7 actions, but they have a specific goal: to make your business profitable again.

-- Can you identify and prevent whatever caused the financial problems?

If you don't know why the business isn't a success, reorganizing under a Chapter 11 bankruptcy could be an expensive effort that still ends with the doors eventually closing anyhow.

You may need the help of other financial or industry experts to look at your business and determine exactly what went wrong in order to avoid the same mistakes in the future. It's important to keep an open mind about the type of changes you may have to make in order to turn the company around.

An attorney can provide more advice about business bankruptcies, as well as other options that may be available to you.

Source: FindLaw, "What to Expect When Filing for Bankruptcy," accessed Jan. 23, 2017

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