Unfortunately, one of the main reasons for filing bankruptcy is a failing business. I often meet with clients that are business owners that know that their business is failing, but have yet to close the business.
There are usually a lot of questions surrounding the issue of when to close the business. Here are some general tips on the best timing for closing a business and filing for bankruptcy.
When is the best time to close the business?
The answer to this question is a difficult one, because it is often a complicated fact-specific answer. The best way to know, is to meet with an experienced bankruptcy attorney at Kain & Scott for a free consultation to help navigate the issue. The below information is intended to be general information I often use with most of my clients’ fact scenarios, but not a substitute for the benefits of a free consultation with one of our lawyers.
Short Answer: Your business should be closed when you are ready to close it.
Long Answer: It is a really emotional experience closing a business. Small-business owners in Minnesota sacrifice a lot financially, emotionally, and physically in running their businesses. You may have invested a lot of your own money into the business or taken out a lot of debt for the business. You may have put your heart and soul into your product or service and it breaks you to imagine having to close the doors. You may have worked long, physical hours at your business trying to make ends meet. This creates a lot of emotional baggage in owning a business that makes the idea of closing the doors really difficult. That is why I often start by telling my Eden Prairie, MN clients that the best time to close their business is when they are ready to close it.
More often than not, it is better to close the business prior to filing bankruptcy, than it is after filing bankruptcy. That is because your ownership interest in your business is an asset which needs to be disclosed in your bankruptcy. It is usually easier to value a closed business in your bankruptcy schedules than it is an open business. That is because we simply list it as the net value of the businesses assets minus its debts. Usually, the debts exceed the assets and the business is valued at $0. Even if a business may have some money in the bank and equipment still in its possession, it will be valued at $0 if the business’s debts exceed the value of the assets.
If a business is still operating, you can still file bankruptcy before you close the business. Please be aware, that as soon as you file for bankruptcy, any creditors of yours and the business will learn that you filed. If you owe back rent to a commercial landlord, the bankruptcy filing may motivate them to close the doors before you get everything you need out of the space. If you owe a vendor and are continuing to operate, that vendor may stop selling you a necessary product before you are ready to close the doors. If your business relies on credit cards to pay for certain monthly expenses, the credit cards may close from the bankruptcy filing before you are ready for them to close. For these reasons and others to be discussed with an experienced bankruptcy attorney, it is often easiest to close the business pre-filing.
CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT KAIN & SCOTT
Kain & Scott’s experienced bankruptcy attorneys know how to help Minnesota business owners navigate the process of closing their businesses. If you are looking to close a business and file a Chapter 7 or Chapter 13 bankruptcy, reach out to Minnesota’s nicest bankruptcy law firm by going now to www.kainscott.com. You will be thankful you did.
