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Should our company file for bankruptcy protection?

As we’ve seen with the many Chapter 11 cases we have covered in our blog posts, businesses end up filing for bankruptcy protection for many different reasons. In some cases, something may have happened that was within the company’s control. In many other instances, the situations that led up to the financial difficulties for the company were out of their control altogether.

No matter what the reason is that led to financial difficulty, a company owner may at some point ask him or herself the question: “Should we file for bankruptcy protection?” This is a very tricky question and there are a lot of factors to consider. Although many different professionals have touched on this topic throughout time, the decision is ultimately defined by the unique circumstances of the company. In other words, one blanket answer can’t cover every possible scenario that a business may be dealing with. And as we all know, every business is very individual in the way it handles financial issues.

One legal professional suggests looking at the question from a risk perspective. He says if the owner’s personal assets are at risk, it may be wise to file for bankruptcy protection. This is why some business owners organize their business as a limited-liability entity, LLC, or corporation. It helps protect their personal assets from creditors.

Even if a company is set up as a limited-liability entity, it doesn’t mean that an owner’s personal assets aren’t vulnerable. In many cases, if a business owner doesn’t separate his or her personal and business expenses, the court may disregard them as separate. On top of that, a business owner may have put a personal guarantee on any lines of credit or startup capital that was involved in the business.

Because every situation has its unique circumstances, it’s important to discuss your case with an attorney who can help you understand your options in terms of bankruptcy.

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