Pros and Cons of the Bankruptcy Process under Chapter 7 By Suzzanne Uhland

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If your business happens to be struggling with its finances and has already spent a considerable amount of time negotiating with creditors trying to stop their harassment. If by any chance you truly believe there is nothing left to do for your company and you have already received countless pieces of advice and help from experts. It is time for you to declaring bankruptcy for your business and adhere to the Chapter 7.

There are many businessmen who believe that bankruptcy is the worst thing that could happen to your company. Its credit will be dramatically affected, its reputation will be in a way damaged and its image will be by all means affected by this decision. However, declaring bankruptcy when your company’s options are limited and its resources insufficient to face your debts might be a fantastic idea. Especially if it is declared under the figure of Chapter 7, where most of your business debts are canceled in a short period of time (from three to six months).

Like every decision in life, declaring bankruptcy comes with both pros and cons that should be considered and reviewed after making such an important decision. In this article, Suzzanne Uhland will share some of the most important pros and cons that should be considered before you declare your business is bankrupt.

Related: How to decide if 7 or 11 is the Right Bankruptcy Choice

Pros of Chapter 7

Short waiting time: If you decide to declare your small business bankrupt under the Chapter 7, you can do so as an individual or a company. As long as you are a sole proprietor you can adhere to the Chapter 7 and your financial situation will be solved in a period of time between three to six months. This means that your company’s credit life will be immediately affected, but it also means that it won’t have to deal with creditors anymore and will be free from most of its debts.

Pros of Chapter 7

Prevent a lawsuit: By not going bankrupt under the Chapter 7 because you fear what may happen to your company’s credit, you will for sure expose it to legal processes that may also hurt its reputation. Every missed payment, defaults or repossessions have the chance to hurt your company’s credit in a worse way. Solving legal issues with different creditors may be more difficult to explain and solve later than simply accepting your company is bankrupt and need to go through the Chapter 7 process.

Pros of Chapter 7Keeping your assets: The majority of state exemptions will allow your company to keep its business assets out of bankruptcy. This means your company will be allowed to keep everything it needs to keep operating after declared bankrupt.

Credit and loans: Your Company’s credit will be hurt in a way that you won’t be able to have access to a credit at least three years after filing the Chapter 7. However, credits may be what got you into bankruptcy in the first place, so not having them can be rather useful. Also, there are other ways for you to have access to a loan if that is what you need. There are some lenders who specialize in lending money to companies which have taken major steps into financial difficulties.

Pros of Chapter 7

Recommended: Credit Availability and Credit Scores After Bankruptcy

The biggest pro of going under the Chapter 7 is that once you decide to go under this figure, your company starts rebuilding your credit life. In other words, you are taking the step your company needs to organize its finances and start from scratch now that the system is giving it a second chance.

Cons of Chapter 7

Credit report: As it has been said, declaring your company bankrupt under the Chapter 7 is going to affect its credit. This means that banks won’t lend it any money and it won’t be able to make considerable investments for a period that goes up to 10 years unless it finds other ways to finance those investments. Also, the more your company applies to a credit the fewer chances it has to get it. Most companies start to rebuild their credit after bankruptcy once your company gets a discharge of your prior debts.

Cons of Chapter 7

What you lose: You will for sure loose luxury properties, since they won’t be covered by the state exemptions and will be sold to pay creditors. Also, all your company’s credits will be canceled and the bankruptcy trustee will have the last call on what is sold to pay for your debts. Sometimes, even your future incomes are used to pay for your current debts under the Chapter 7 figure.

Cons of Chapter 7

Waiting time between each Chapter: Be careful not to declare your company bankrupt if it actually can deal with its financial situation and creditors. Once your company is done with the Chapter 7 bankruptcy process, you won’t be able to file another Chapter 7 or Chapter 13 application for it for the next six years.

Cons of Chapter 7

Company dissolution: If you go under the Chapter 7 as a partnership, corporation, or limited liability company (LLC), your business will be immediately liquidated. This means that every member will lose the chance to decide over the company’s assets and they will immediately pass to the bankruptcy trustee, which will sell off the assets of the business in order to pay to its creditors.