When you first started and registered your business, you never thought you would be considering filing for bankruptcy. Now, your business is struggling to stay afloat. What happened? The truth is, being on the brink of bankruptcy is an all too common situation many entrepreneurs face (and, by many, we mean 80%). Contrary to popular belief, considering bankruptcy is not a certain sign that your business is destined to fail. In fact, several big-name companies—such as Apple, General Motors, and Six Flags—have bounced back. Why can’t yours be another name added to that list? That said, read these questions so that you gain more insight about your situation (as well as why you may benefit from a Virginia secretary of state business search).

1. What Assets Do You Have?

If you haven’t already, take inventory of your personal and business assets. If you are the owner of a sole proprietorship, your personal assets may be put on the line. It is important to figure out what is and what isn’t accessible to creditors. On that note, it is best to talk with your accountant to discuss your assets. If you own a limited liability company (LLC) or corporation, you do have benefits that a sole proprietor doesn’t have, in that your personal assets are protected (unless you listed them as collateral or you are involved in a “pierce the veil” situation). In which case, it is still recommended to see your accountant to discuss your business assets and if your personal assets can be seized.

2. How Much Do You Owe?

Do you have any more invoices coming in that you have not accounted for? Are you so close to securing a new client (and lucrative account) that you are willing to roll the dice and stay afloat a little longer? Are your losses overwhelmingly more than the revenue stream that is trickling in? Ask yourself (and your accountant) the hard questions. See if there is a light at the end of the tunnel—that might or might not include filing for bankruptcy.

3. Is Chapter 7 Bankruptcy Right for You?

So, you have talked with your accountant and attorney, and you have come to the decision that filing for bankruptcy is the right choice for you. Now what? Out of the three bankruptcy types, which one is best for you? Which leaves us to consider Chapter 7 bankruptcy, perhaps the most synonymous to what we think of bankruptcy. When a business files Chapter 7, normally restructuring is not an option. In other words, Chapter 7 aims to liquidate the business—with as little pain as possible. In filing Chapter 7, the court appoints a trustee that oversees the possession (and liquidation) of assets and distribution to creditors. Once this is done, the case is complete and the owner is released from any other obligations.

4. Is Chapter 11 Bankruptcy Right for You?

Unlike Chapter 7, when a business files Chapter 11, there may be a way out. In this case, with your bankruptcy attorney, you would create a reorganization plan—in other words, how you plan on continuing your business and paying off the debt you owe. The planning and approval stage can take up to a year (if not more) so be patient—even if you find yourself twiddling your thumbs. Once (and if) the court and creditors approve the plan, you then can put it into motion.

5. Is Chapter 13 Bankruptcy Right for You?

Chapter 13 differs from Chapter 7, in that your personal assets may not be calamities. Similar to Chapter 11, this type of bankruptcy involves reorganizing. In so many words, what you owe comes down to the amount of property you own and how much money you are bringing in.

6. Should You Talk with an Accountant and Attorney?

Yes, yes, and yes. This can’t be said enough. In no way shape or form does this article replace the valuable insight a licensed accountant and attorney can give you. Please make sure to discuss at length potential business options and what type of bankruptcy your business would most benefit from—as well as the steps you would need to take to ensure the process goes smoothly.

7. What If You Do Fail?

It is all too common to link bankruptcy with failure. However, the real failure, as Entrepreneur states, is in not trying at all. As mentioned, 8 out of 10 businesses do fail within the first 18 months. Know that you are not alone and that, most of the time, success does not come from the first try; it took Colonel Sanders 1,009 times before his fried chicken recipe was sold. And, as Entrepreneur mentioned, it took Thomas Edison (infamously) 10,000 times before he successfully created the first fully functioning electric light bulb.

8. Is Filing for Bankruptcy Your Only Option?

Short answer: it depends. There are other options—such as selling your property, consolidating your debt, and assessing your budget—that can be included with or outside of bankruptcy. Still, it is advisable to discuss other options—and if they apply and would benefit your situation— with your licensed accountant and attorney.

Final Thoughts

Know that bankruptcy is not a sign of failure; in fact, the bankruptcy process is there to give a hand to struggling businesses and allow them to repay debt—and perhaps even come out on top. Even if your business does fail, there is always a silver lining. Perhaps your business had to fail in order for you to take away important business life lessons, and that from the ash, rises a more successful company. Do you have any other bankruptcy tips to offer? How has your business progressed despite setbacks? What about business success stories? Let us know by commenting in the comments section below.

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