Bankruptcy as an Exit Strategy for Failed Startups

Closing down sale sign on shop windowAll good things come to an end, but all failed startup come to an end a little sooner. It’s not the end of the world, but owners of a failed startup often feel paralyzed and unsure of what to do next. It is possible to see your hard work and assets live another day by taking advantage of benefits of bankruptcy.

How Can You Use Bankruptcy?

There are a few different ways to use bankruptcy, or even the threat of bankruptcy, to your advantage if your business is failing. Here are some examples of potential benefits.

  • An automatic stay can immediately relieve the pressure on an owner under the immense pressure of collection actions. Foreclosures, lawsuits, repossessions, wage garnishments, etc. are all legally prohibited or put on hold after filing bankruptcy.
  • Chapter 7 allows for a smooth and orderly liquidation of company assets. A trustee will be in charge of the sales, therefore taking the responsibility off of the owner’s shoulders.
  • Investors that have equity in your company will obviously have an interest in seeing it succeed. If your company files for Chapter 7 bankruptcy, the equity investors will find themselves pretty low on the priority list, behind creditors and landlords. This often means a substantial loss for the investors. Sometimes, that can be enough to persuade investors to reinvest or work more cooperatively in a restructuring bankruptcy plan instead.
  • The business can continue to run under a Chapter 11 bankruptcy. The company name, customer base, and reputation can survive a Chapter 11.
  • After filing Chapter 11, a company may defer some financial obligations such as certain rent debts, and extend tax payments for up to five years. It may also be possible to recover any assets that were repossessed prior to filing.

It is absolutely imperative that business owners who are contemplating bankruptcy consult a bankruptcy attorney. Lawyers who focus in business bankruptcy can make sure that every decision is the best one so that you, or your business, come out on top.

Garland & Mason, L.L.CNew Jersey bankruptcy lawyers


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