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Bankruptcy
Business bankruptcy attorneys meet hundreds of clients who have started businesses with the hope of making profits, not failing. However, unforeseen circumstances do happen, and sometimes businesses become overburdened with debt. Instead of letting things get worse for you and your business, you may want to consider filing for business bankruptcy to get the relief you need fast. Contact a LawInfo Lead Counsel qualified business bankruptcy attorney to find out what your options are.
As a business, you have several options. While this page will provide you with general information on what Chapters under which a business can file, your best bet is to consult with an experienced and reputable bankruptcy lawyer. A business bankruptcy attorney would be able to provide you with the legal advice you need and provide the best possible representation for you while you go through the complicated and time consuming process of business bankruptcy.
Even before thinking about the chapter you want to consider filing, the important matter of your business structure must first be considered because your options and resulting consequences of filing for bankruptcy are directly affected by whether your business is a corporation, limited liability company (LLC), partnership or sole proprietorship.
Because corporations and LLCs are considered separate legal entities from their stockholders (owners), they could file for Chapter 7 and Chapter 11 without involving the stockholders, which means that the stockholders may not have to file for bankruptcy because their personal assets are normally protected by the corporate veil from business creditors. Corporations and LLCs can’t file under Chapter 13 because only individuals can file under this chapter.
If the corporation is closely held, the stockholders may also have to file for personal bankruptcy, as well. Certain business decisions made by the stockholders could also expose personal assets to business creditors and force the individual stockholders to have to file for personal bankruptcy. If individual stockholders file for personal bankruptcy, the chapter they should file under depends on their individual financial circumstances. Whether you are a large corporation or a closely held one, it is in your best interest to retain a business bankruptcy attorney before proceeding with the filing of your business bankruptcy.
Partnerships filing for Chapter 7 face a big legal hurdle because the trustee can sue the general partners of the partnership personally if the partnership’s assets are insufficient to pay all claims for the amount by which the partnership assets fall short of partnership debts (11 U.S.C. 723). If your business is a partnership, you definitely need to consult with a bankruptcy lawyer before proceeding.
Because sole proprietorships are nothing more than an extension of the owner’s assets, the business itself cannot file for bankruptcy. Instead, the sole proprietor has to file, and the chapter under which the business owner should file depends on his or her financial circumstances. If you are a sole proprietor, consult with a bankruptcy lawyer to find out your best options.
These are only a few things to consider before deciding upon what chapter you should file for business bankruptcy protection. Consult with a bankruptcy lawyer to assure you make the best decision possible for your situation.
The following are chapters under which a business may file for bankruptcy:
Chapter 7 is covered in greater detail in personal bankruptcy. In a Chapter 7 bankruptcy, all the business assets are liquidated and the proceeds from the liquidation are distributed to the creditors. This is the best option if the business is closing its doors and going out of business altogether. If you are interested in continuing to do business, but are simply seeking relief from your debts, you should consider filing under another Chapter. Contact an experienced business bankruptcy attorney for more information because business bankruptcy is much more complicated than personal bankruptcy.
Chapter 11 is a bankruptcy proceeding that was originally intended for larger corporations. However, now both businesses and individuals not qualifying for Chapter 13 can file under Chapter 11. It is designed to restructure and reorganize assets and liabilities, and is generally used by businesses that need assistance in developing a plan to restructure the existing debt while continuing to run the day-to-day business. Chapter 11 can be filed voluntarily by the debtor or involuntarily by the creditors.
The debtor in Chapter 11 reorganization is referred to as the "debtor in possession." The debtor-in-possession generally has many creditors, and it becomes very difficult for the debtor to contact and negotiate with so many creditors. In cases where there are simply too many creditors for the debtor in possession to handle, the United States trustee will appoint creditor committees which are generally comprised of the debtor's seven largest unsecured creditors. These committees are then task with negotiating on behalf of the debtor in possession.
Chapter 11 is a time-consuming process that involves filing monthly reports of cash receipts and disbursements and assisting the lawyer in the preparation of a Disclosure Statement and Debt Repayment Plan. The Disclosure Statement must first be approved by the court; then the Plan must be confirmed by the court after a sufficient number of creditors vote for the acceptance of the Debt Repayment Plan. Chapter 11 is very complicated and can get expensive, but it can also save your business from lien liquidation while you continue operation. This could be quite beneficial if you are a corporation or LLC, or if you’ve been in business for a very long time and just need some breathing space to get caught up financially.
The "bankruptcy bargain" under Chapter 11 is that, in exchange for the protection of the automatic stay and other bankruptcy protections, the debtor provides full disclosure of its financial condition to creditors and the court, both at the beginning of the case and on a monthly basis thereafter, and operates as a fiduciary for its creditors while the bankruptcy is ongoing.
What is a fiduciary?
A fiduciary is one who is entrusted with duties on behalf of another. In the case of bankruptcy the debtor in possession in a Chapter 11 proceeding is considered a fiduciary for the creditors, meaning that it must maintain the highest level of good faith, loyalty and diligence to the creditors rather than to the shareholders of the debtor or to the debtor himself or herself if no shareholders are involved.
Consult with a business bankruptcy attorney before proceeding with a Chapter 11 bankruptcy. You could be better off filing under Chapter 7, but only an experienced bankruptcy attorney would know.
Chapter 13 is covered in greater detail in personal bankruptcy. It is a proceeding for individuals (including self-employed individuals or sole proprietors) who have regular income from any source like a salary, social security, retirement, or other income. Chapter 13 provides debt relief by allowing an individual to repay his or her debts, or portion of the debts, over a period of 3 to 5 years.
Are you a business struggling to make ends meet? Could you use some debt relief while continuing operations? If you are business considering bankruptcy, you definitely need a lawyer. Contact a LawInfo Lead Counsel qualified bankruptcy lawyer to find out what your options may be. It could be the best business decision you make.
Read about these related areas of bankruptcy law for more information about what options may be available for you.
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