Bankruptcy is a popular name used when an organization or person can no longer pay creditors and bills. Opening a business is not easy, as most lack the right financing to keep them operating for an extended period. This further explains why most startup businesses are shut down a few months after opening.
Small enterprises can navigate poor economic conditions easily by offering excellent investment opportunities and creating jobs. However, access to loans has been limited due to the nation’s current state.
Business owners should consider several things before filing for bankruptcy. Bankruptcy is available in two forms; chapter seven bankruptcy and chapter thirteen bankruptcy. The bankruptcy process demands dedication and time; both options impact your future interest, credit report, and lifestyle.
Business owners should analyze their situation critically to make the best decision. Below we discuss the pros and cons of applying for bankruptcy and what to consider before your startup shutdown.
Benefits Of Bankruptcy
The main benefits of filing for bankruptcy include the following;
1. Automatic Stay
When a business or individual files for bankruptcy, the state’s bankruptcy laws make the creditors powerless, and they cannot access your assets and funds. The injunction is ordered automatically after filing, preventing creditors from accessing the debtor’s properties.
Filing for bankruptcy also stops creditors from suing and calling the party that owes them. However, filing for bankruptcy does not eliminate the debt; instead, it postpones the debt collection date.
Bankruptcy also has exemptions, mainly in criminal proceedings, child support, and paternity establishments. You can get more information online on how to dissolve an llc.
2. Improved Credit Score Rating
Even though the bankruptcy filing record lasts up to ten years, debtors can utilize this time to enhance their credit scores. The most important thing to remember is your credit history and use the necessary tips.
Applicants should ensure they clear their loans on time and save at least 20% of their monthly income by increasing their credit score rating. As stated above, bankruptcy is available in various forms.
For example, chapter seven has some debtors’ properties sold to clear their debt. Fortunately, the debtor can keep items like furniture and clothes. Below we discuss how a Goodbye Startup can help.
Disadvantages Of Bankruptcy
Bankruptcy does have not only a positive side but also a negative one. The main disadvantages of bankruptcy include the following;
1. Property Loss
Despite bankruptcy applicants being able to retain particular possessions, their property can sometimes be captured and sold to creditors. This can affect a company or an individual, primarily if the item has a high market value.
Also, a debtor might have an essential family item auctioned, which can be a significant setback.
2. Tax Refund Denial
Debtors with small enterprises can have issues filing for bankruptcy since they might not get approval from various tax refunds that might have been a significant cash amount.
Bankruptcy happens when a person or business can no longer pay their debts. The above article has discussed the pros and cons of bankruptcy, and you can reach out for more information on how to dissolve an llc.