Business Insolvent Meaning and Bankruptcy in Arizona
You’ve worked hard on your business, but things just aren’t going as planned. Sales are down, debts are up and you wonder how you’ll pay your employees. There comes a point when you need to evaluate whether or not your business is insolvent and see if you should file for bankruptcy in Arizona. An Arizona bankruptcy attorney can help you evaluate your finances and make the decision that is right for you.
As the owner or manager for the business, you are responsible for acting in the best interest of everyone involved. Your goal is to act in good faith and manage the finances in a healthy and wise manner, which means evaluating the finances regularly to see where you are at and what you need to do to grow the business.
If during your financial analysis you find that your business is insolvent, you should talk with a bankruptcy attorney to determine the next steps.
What is business insolvency?
In simple terms, business insolvency is the inability to pay your company’s debts on time to the people or organizations that you owe money to. There are two types of insolvency: cash-flow insolvency and balance-sheet insolvency.
Cash-flow insolvency occurs when a company has assets to pay what it owes to its creditors, but those assets are not in the right form to pay those fees when due. For example, you might own a portion of the office space that you operate out of but do not have the funds to pay for your company car because your funds are tied up in the building. The lack of liquid assets in this scenario makes your business insolvent because you are unable to pay your debts on time.
Balance-sheet insolvency occurs when a company does not have enough cash or assets to pay its debts when due. In some circumstances, you might be able to negotiate with your creditors to avoid filing for bankruptcy. In the early days of a business, balance-sheet insolvency is not all that uncommon as you work to build the business into a strong and thriving enterprise. With a little bit more time, some companies can find the success they need to get the business going and solve their financial woes.
Your goal as a business owner is to avoid bankruptcy at all costs, so hold those negotiations with your creditors before you file for bankruptcy. There is a chance that with a bit more time, you can still succeed with your business.
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What to discuss with your Arizona bankruptcy attorney
When times are tough and you can’t negotiate your way out of your business’ insolvency, it’s time to talk to an Arizona bankruptcy attorney. Your attorney can help you review your circumstances and see what makes the most sense for your business. There are various types of bankruptcy that you can file for your business.
In Chapter 7 bankruptcy, you liquidate your company because you know there is no viable future for that company. This type of bankruptcy is designed for those who cannot restructure their debt to be successful once again. Another reason you might file for Chapter 7 bankruptcy for your business is if your business does not have many assets.
For cases where there is a chance the business can turn things around, there is Chapter 11. In this type of bankruptcy, you file a detailed plan with the courts of how you’ll deal with your debt and become financially stable once again. During this type of bankruptcy, you agree to pay your creditors back over a certain time period.
Chapter 13 bankruptcy is generally for individuals; however, if you own a sole proprietor business, you can file for this type of bankruptcy. This type of bankruptcy can help you avoid losing your home or other personal assets when your business is not doing well.
If you have questions about how to file for bankruptcy for your business, contact us. We’re an Arizona bankruptcy law firm that can help you make the right decision for you and your business.
Click here for information on Arizona personal bankruptcy and retirement accounts.