Three signs bankruptcy may be the best path for your business

Deciding to move forward with relief through bankruptcy can be difficult. These three questions can help.

Considering filing for bankruptcy is not easy. This is particularly true for those who are attempting to keep a business running. For many entrepreneurs, a business is more than just a professional endeavor. Businesses often have strong personal meaning as well. This can make the thought of bankruptcy particularly difficult.

It can help to take a step back and ask some logical questions. A discussion about the answers to these questions may aid those who are struggling with the decision to file for relief through bankruptcy.

1) How do the business' assets and liabilities compare? A publication by Forbes notes that a review of the comparison of current assets to current liabilities is one way to predict impending bankruptcy. Those who struggling with this decision can take a moment to review the liquidity of the business. If it is bleak it may be wise to begin bankruptcy discussions.

2) What kind of terms are lenders offering? A piece in The Motley Fool focusing on advice for investors notes that a bankruptcy may be likely if a business is getting painfully unfavorable terms from lenders. Thus, additional support for the decision to move forward with a bankruptcy petition is likely present if you have attempted refinancing or getting additional credit and the terms are unfavorable.

3) Are personal assets at risk? In some situations, personal assets can be at risk. Two examples include forming a business as a sole proprietorship and commingling business and personal funds. Unfortunately, even the protections available for business formations like a limited liability company (LLCs) can fail if business funds are not clearly separated from personal funds. If this is the case, it may be wise to pursue bankruptcy.

In some cases, filing for bankruptcy does not mean giving up your business. Some businesses may qualify for a Chapter 11 petition. Depending on the details of the case, this form of bankruptcy can allow a business to continue operations. Other businesses may choose to move forward with a Chapter 7 petition. This form of bankruptcy generally results in liquidation of the business assets and the end of the struggling business. Although this option may seem extreme, it can provide a fresh start for the entrepreneur to move forward with a new business venture.

Determining the best option for a struggling business is difficult. As such, it is wise to seek legal counsel. An experienced bankruptcy attorney can review the situation and discuss all available legal options. This counsel can help to better ensure you choose the best path for both your personal and business interests.