What can bankruptcy do for a small business owner struggling with business debt?

Bankruptcy might seem like a drastic measure for a small business owner. However, there is a lot that bankruptcy can do for you when you're struggling with business debt. In this situation the small business owner is able to file for either Chapter 7, Chapter 11 or Chapter 13 bankruptcy.

If you do file for bankruptcy, especially Chapter 7 bankruptcy, this is an opportunity for the small business owner to start again, if they would like. This is an option in situations in which the business debts are staggering and the company's assets are nonexistent. If there is no real future for the business, then the debts that qualify are discharged. Under Chapter 7 bankruptcy, the business is placed into liquidation with a trustee that oversees it. The trustee will have the job of paying out any money for taxes and creditors who have submitted a claim.

In the case of Chapter 11 and 13 bankruptcy, the small business owner can submit a plan to reorganize the business. For some small businesses, this can be a healthy way to sort through old contracts and see which ones generated money in the past. A reorganization might be beneficial in releasing cash and also reducing the amount of cash lost to creditors. Keep in mind that a reorganization will not instantly give you the skills needed to operate a business. Nor will it improve the market industry that your business is operating in.