Filing for bankruptcy doesn’t always mean closing your doors. Many business owners in Washington state are surprised to learn they may be able to keep operating during the process.
Whether that’s possible depends on the type of bankruptcy you file and how your business is structured. Here are some key points to keep in mind.
Chapter 11 allows continued operations
Chapter 11 bankruptcy is designed for businesses that want to stay open while reorganizing their debts. This is common for corporations, partnerships and LLCs. Under Chapter 11, you work with the court to create a repayment plan that helps you manage debts over time. You keep control of your business as the “debtor in possession,” but the court oversees major financial decisions.
This process can give you breathing room to renegotiate contracts, reduce expenses and try to return to profitability. Creditors must be notified, and the plan must be approved by the court.
Chapter 7 means closing down
If your business files for Chapter 7 bankruptcy, it typically means that it will close. A bankruptcy trustee will sell the business’s assets to pay creditors. Chapter 7 is more common for sole proprietors who want to walk away from a struggling business and discharge remaining debts.
However, sole proprietors may be able to continue operating in limited cases, especially if they can exempt certain tools or equipment used in the business under Washington’s exemption laws.
Choosing the right approach depends on your goals, business structure and financial situation. If you want to continue running your business, Chapter 11 may be the right solution.
Seeking legal guidance will help you explore your business bankruptcy options in more detail.