Bankruptcy Options for Online Business Owners

Running an online business can be a great experience for many individuals. While many online businesses succeed, many also fail. There is nothing wrong with failure: Some of the most successful business owners of all time have experienced failure in the past. While it’s always possible to recover from a business failure, there are financial obligations that come with failure. Fortunately, many of them are easy to address. The following guide provides an explanation of effective bankruptcy options for online business owners.

The two most common types of bankruptcy in the United States are Chapter 7 and Chapter 13. Chapter 13 bankruptcy allows filers to negotiate debt with creditors. A Chapter 7 bankruptcy allows for the complete discharge of all debts. Both Chapter 13 and Chapter 7 have their benefits and disadvantages.

Before Filing

Before filing for bankruptcy, it’s important to understand the link between your personal finances and your business finances. In some cases, individuals manage a business under their own name. While there’s nothing inherently wrong with this practice, it does expose an individual to an increased risk of personal financial loss. Individuals that run a business under their own name usually use their own social security number when filing taxes for a business. Unfortunately, personal assets can be in danger in this type of situation.

Assessing Creditors

Businesses can acquire debt through a variety of different sources. If a debt isn’t paid on time, it will usually be purchased by a collection company after 180 days. Once this happens, a collection agency may sue an individual or a company in an attempt to recover the debt. Once an individual has been sued for debt, there is a very good chance that a judge will either garnish wages, place a lien on property or levy an individual’s bank account. It’s essential to declare bankruptcy before this happens: If your bank account is levied, creditors will be able to drain it down to a balance of zero until a debt is repaid.

Before filing bankruptcy, create a list of all your creditors. Keep track of the last time that you made payments on your debt. If it has been more than six months since you last made a payment, that creditor is likely to discharge the debt to a collection agency, and you are at a very high risk of being sued. You cannot be jailed for not paying a debt in the United States; however, if you fail to respond to court summons, you may be jailed. However, this will usually require that you be served a summons by a process server.

Chapter 13

Chapter 13 gives you the opportunity to negotiate a debt repayment plan with your creditors. In many cases, creditors will work with you to find an effective way to pay down your debt over time. While your credit rating may take a hit during this process, it usually isn’t as bad as a Chapter 7 bankruptcy.

Chapter 7

In Chapter 7 bankruptcy, all your debts are discharged. At the end of the process, you will have no debts. However, a Chapter 7 bankruptcy will remain on your record for 10 years.