The Sacramento, California, area saw a decline in small business bankruptcy filings for the first quarter of 2012. Compared to the first quarter of 2011, small business filings are down 27.4 percent.

Equifax, one of the nation's top three credit reporting agencies, says that 323 small Sacramento-Arden-Arcade-Roseville regional firms filed for bankruptcy protection in the first quarter of 2012, whereas 445 filed the same period in 2011. Many other regions nationwide have seen a similar trend, and Equifax predicts that small business filings will continue to decline.

The Equifax study analyzed Chapter 7, 11 and 13 filings of commercial entities of fewer than 100 employees. While this is may be a sign that the economy is improving, many small business owners may still be struggling in the current economic environment.

Filing for bankruptcy protection affords small businesses the chance to protect the owner's personal assets while restructuring to save the company. There are several types of bankruptcy that small businesses may file, including:

  • Chapter 11 bankruptcy: This filing allows the business to keep creditors at bay while working out a plan to reorganize the company
  • Chapter 7: Often called a straight liquidation, a Chapter 7 is the fastest type to file, but the business is shut down and not allowed to reorganize
  • Chapter 13: This filing allows a business to work out a repayment plan with some creditors (usually for secured debts) while relieving the business of other debts, depending on the amount that the business will pay back over the life of the Chapter 13 plan

For California business owners considering their options, dealing with complex bankruptcy issues may be overwhelming. However, resources are available to help determine the best path, whether it involves closing the company or reorganizing for future success. While overall trends are encouraging, circumstances that may often be beyond control can influence the decision to consider bankruptcy.

Source: The Sacramento Bee, "Small-business bankruptcies down in Sacramento region," Mark Glover, June 14, 2012