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Do you have to sell all business assets in bankruptcy?

On Behalf of | Feb 13, 2023 | Bankruptcy

Many business owners who are facing overwhelming debt know that they need a solution to their challenges. They’re simply not sure what that solution could be because they worry that they will lose their company if they declare bankruptcy.

While this process would get rid of their debt, they might have to liquidate their assets. There could be no business left for them to run afterward, and they would lose their source of income – which is naturally not an attractive option if they think that their business is still viable. They don’t want to close, but are struggling to find a path toward future success.

As a result, people will sometimes believe that they shouldn’t file for bankruptcy because they’re going to be forced to sell all of the company‘s assets. But is this assumption actually true?

There are multiple types of bankruptcy

An important thing to remember is that bankruptcy is not the same in every single case. If a business files for Chapter 7 Bankruptcy, similar to when an individual does so, then they will have to sell off non-exempt assets to repay their creditors. Remaining debt will be wiped out, but it is true that the business owner will no likely longer have a functional company to run.

But if you think that your business can still earn money and you simply need to overcome some debt and cashflow problems, you may want to consider Chapter 11 bankruptcy. This creates a reorganization plan. Companies are often able to find new ways to increase revenue, cut costs and restructure their debt. They can take steps to make that debt affordable, based on the money that they are currently earning. In many cases, this can be the catalyst for the company to fix its debt problems and to be successful moving forward.

As you can see, it’s quite important to know about all of your different options for bankruptcy and what steps you will need to take. Just be careful not to make assumptions about how the process works that could cause you to overlook useful financial tools.