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Bankruptcy Benefits for Struggling Small Businesses and Owners

Small businesses have the potential to reinvigorate poor economic conditions by creating jobs and provide exciting investment opportunities. However, because of the current state of the U.S. economy, access to loans and credit has proven more difficult for small businesses, some of which end up turning to bankruptcy protection. While many small business owners presumably view bankruptcy as a failure and the end of their ventures, this is not typically the case. In fact, filing bankruptcy may tactically benefit some small businesses.

Small Business Filings

According to the American Bankruptcy institute, over 323,000 businesses filed for bankruptcy between 2004 and 2010. A recent study by the Small Business Administration's Office of Advocacy stated that around 2.6 percent of small business owners had to seek bankruptcy protection at some point in the last seven years. The study also found that approximately 70 percent of businesses who filed for Chapter 7 or Chapter 11 had the chance to either reorganize their businesses or liquidate them to begin new endeavors.

Bankruptcy Options

Small businesses may either file for Chapter 7 bankruptcy liquidation or Chapter 11 bankruptcy reorganization. For Chapter 7 filings, the bankruptcy court appoints a trustee to oversee the sale of most small business assets to pay off any outstanding debts, starting with the unsecured ones. For Chapter 11 filings, business owners are allowed to continue running their small businesses while they reorganize their debts into a court-approved repayment plan. This option provides more control and flexibility for small business owners.

Tactical Benefits

Bankruptcies allow small businesses to reduce or eliminate unsecured debts and sometimes return to profitability. They can also consolidate dealings with creditors, saving businesses time and preventing any legal actions by creditors during the bankruptcy process. For many small businesses, bankruptcy provides the opportunity to improve their overall operating standards and reinvent new strategies to attract investors instead of applying for loans or credit. These benefits may give small businesses a fresh start.

Securing Future Success

Once small businesses have survived bankruptcy, studies show that their owners are less likely to seek unsecured debt and more likely to appeal to investors for financing. In addition, they are no more prone to financial issues than other small businesses that have not previously filed for bankruptcy.

One way to ensure a small business bankruptcy is handled correctly is to hire an experienced bankruptcy attorney. If you are a small business owner struggling to decide the best path to preserve your operations or ensure that they end under the best possible circumstances, contact a local bankruptcy attorney for assistance in assessing your unique business situation and available options.