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Business Bankruptcy - Frequently Asked Questions
Do you happen to be a small business owner being strangled by mounting debts and limited cash flow? Are you unable to repay your priority, secured and other debts? Do you use money from taxes withheld for business purposes? If so, here are some business bankruptcy FAQ’s that can help you understand what’s involved:
1. What are the different kinds of business bankruptcies?
Sole proprietorships, partnerships, LLCs and corporations can file for Chapter 7 or Chapter 11 bankruptcy. Chapter 7 is liquidation and it involves selling the business’s non-exempt assets and repaying creditors with the proceeds. After the bankruptcy process is complete, the business would cease to exist. Chapter 11 is business reorganization. It allows businesses more time to be able to repay debts. Businesses that see no point in continuing operations may seek protection under Chapter 7, while viable businesses can choose Chapter 11 business bankruptcy.
2. What are the challenges of a business bankruptcy filing?
Sole proprietors have to file for bankruptcy in their individual name because the sole proprietorship business is an extension of the business owner. Partners run the risk of being sued by the case trustee in a Chapter 7 business bankruptcy in case the assets of the partnership firm are inadequate to repay its debts.
3. Chapter 7 or Chapter 11 business bankruptcy - which option should a business choose?
The business owner must understand that by reorganizing his business by seeking protection under Chapter 11, he cannot expect more desirable market conditions. He must opt for this type of bankruptcy filing only when he is operating a business that can make profits in the future given its current strengths. Chapter 11 business bankruptcy will help him free up some cash that can be used to run the day-to-day operations of the business. It will also help him reject expensive leases and stop creditors from taking over his business assets.
4. What happens when a Chapter 11 bankruptcy process fails?
The court will convert it to a Chapter 22 bankruptcy, which is quite identical to a Chapter 7 bankruptcy. The business assets are sold and the business ceases to exist after the Chapter 22 bankruptcy process is completed.
5. What should the business owners pay attention to?
Before opting for Chapter 11 bankruptcy, the business owner must compute his priority debts. If he cannot repay these debts, Chapter 11 business bankruptcy could not help him. He must also check the extent of his secured debt. Secured creditors don’t reduce a business owner’s debts because the former could always take possession of the assets of the business. The business owner must make a list of his creditors and understand their classification and priority before selecting a business bankruptcy category.
These are some of the important factors that all business owners must pay attention to before seeking protection under Chapter 7 or Chapter 11 business bankruptcy.
Small business owners seldom contemplate bankruptcy unless serious financial pressures exist. If your business has slipped behind with creditors and you’re thinking about business bankruptcy, there are alternative solutions such as debt management or consolidation. Consider all possibilities before filing for different types of business bankruptcy.
Another Choice Apart From Business Bankruptcy Is Assignment
Business owners who do not want to seek protection under Chapter 11 business bankruptcy can give some thought to an Assignment for benefit of Creditors. This alternative should only be considered when the business is no longer sustainable because of an unprofitable product line and/or a mountain of debt. An assignment for benefit of creditors is different than Chapter 7 and Chapter 11 business bankruptcy. In fact, it is a substitute for Chapter 7 bankruptcy and business owners who need reorganization, not closure, must not consider it. A Chapter 11 bankruptcy should be opted for by businesses that need restructuring.
An Assignment for Benefit of Creditors is a process that is governed by state law and therefore it differs from state to state. It is supervised by state courts. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. It is usually the business owners and creditors who choose the assignee, and it is also vital that the chosen assignee is experienced and reputed. You need to take note that in the case of a business bankruptcy, it is the court that selects the case trustee. The business owner has to assign the business assets to an assignment estate.
A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After having sold business assets, the assignee would pay the creditors, deduct certain fees and costs from the proceeds and would return to the business owner whatever is left.
All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. The business owner files a list of all business creditors. Creditors are then informed by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. Once the assets are transferred to the assignment estate, the business becomes hollow. Even if a case is filed against the business, the creditor wouldn’t get anything.
When the market price of all the business assets is not enough to cover debts, business owners should choose Assignment over business bankruptcy. Assignment is less formal than a business bankruptcy process and moves much faster. Creditors cannot object to any sale made by the assignee. However, until the other party gives consent, an assignee could not force transfer contracts and leases. In a chapter 7 or Chapter 11 business bankruptcy, no such consent is needed. So, a business owner with franchisees should consider bankruptcy, not Assignment.
Small business owners seldom consider bankruptcy except when there are serious pressures. If your business has fallen behind with creditors and you’re looking into business bankruptcy, there are alternative solutions like debt consolidation or debt management. Look at all possibilities before declaring considering business bankruptcy filings.
It Is Not That Simple To File For Business Bankruptcy
Business bankruptcy may look like an easy way out for businesses that are heavily weighed down by debt, but bankruptcy is not as simple as it may seem. You need to determine whether or not your business has great potential. If your business does not have any future, then you may choose to file for bankruptcy under Chapter 7, which will help liquidate the business. However, if you can see some light at the end of the tunnel, you may prefer to file for bankruptcy under Chapter 11, which will help reorganize the business. Before filing a business bankruptcy, consider and prepare for the following:
1. Keep your financial statements, tax records, and a list of contracts (executed and under execution) ready. These have to be filed together with the petition.
2. Filing for business bankruptcy requires an attorney who is an expert at your type of bankruptcy. For example, filing for a Chapter 11 bankruptcy would need you to have someone who is an expert in Chapter 11 bankruptcy and not with a Chapter 7 bankruptcy. This is because under Chapter 11 bankruptcy, you must skillfully present your case to creditors and an attorney who specializes in Chapter 7 bankruptcy may not be good at it. Chapter 7 bankruptcy on the other hand, is very straightforward and blunt, your business must be liquidated and so the court will help you liquidate it. Chapter 11 bankruptcy is reorganizing the business and it needs you to negotiate with your creditors, which is much more than a plain blunt approach.
3. If you’re a farmer, you can file for protection under Chapter 12 and if you’re a sole proprietor and a wage earner, you can opt for filing business bankruptcy under Chapter 13, which is known as wage earners’ bankruptcy.
4. Be honest and truthful with your lawyer and tell him every single financial detail that will help your bankruptcy case. Talk frankly about your priority debts like alimony, child support, employee benefits due, etc. Also, discuss the number and nature of creditors for example, fully secured creditors, partially secured creditors, unsecured creditors, etc.
5. If you’ve filed for bankruptcy under Chapter 11, the court will require you to act as the case trustee (except in certain fraud cases) and act as a debtor in possession. A committee of creditors will be appointed and you will be required to submit a reorganization plan to the court. The committee of creditors will then vote on your reorganization plan and if it is approved, the court will confirm it. If you have opted for filing business bankruptcy under Chapter 7, you will have to furnish a list of your non-exempt assets to the court, which will then dispose them and divide the proceeds among your creditors in order of their priority.
Filing a business bankruptcy may seem simple, but is more complicated than you can ever imagine. This is why it is essential for you to hire a business bankruptcy attorney who have had extensive experience in dealing with the type of bankruptcy that you would be filing. Good luck.
If your business is in debt and you’re thinking of filing bankruptcy, consult a bankruptcy attorney who has expertise dealing with chapter 11 bankruptcy. You may also wish to consider additional options like business debt consolidation or debt management for small businesses.
It Is Not Easy To File A Petition For Business Bankruptcy
Many businesses look at a business bankruptcy as a manner to get out of debt, however, bankruptcy is not that easy. You must determine whether your business has a future or not. A Chapter 7 bankruptcy, which would liquidate the business, will be appropriate if your business doesn’t have a future anymore. However, if you can see some light at the end of the tunnel, you may prefer to file for bankruptcy under Chapter 11, which will help reorganize the business. Consider contemplating on and preparing the following before you file for business bankruptcy:
1. Prepare tax records, financial statements and contracts, both executed and under execution. These have to be filed together with the bankruptcy petition.
2. When you are planning to file for business bankruptcy, you need to have an attorney who is considered as an expert on the type of bankruptcy that you would be filing for. For instance, if you are looking for protection under Chapter 11, it’s best not to work with a lawyer who specializes in Chapter 7 bankruptcies. This is because under Chapter 11 bankruptcy, you must adeptly present your case to creditors and an attorney who specializes in Chapter 7 bankruptcy may not be very good at it. Chapter 7 bankruptcy on the other hand, is very simple and blunt, your business must be liquidated and so the court will help you liquidate it. Reorganization under Chapter 11 bankruptcy would require discussions between you and your creditors, which would be more complex as compared to liquidation.
3. If you’re a farmer, you can file for protection under Chapter 12 and if you’re a sole proprietor and a wage earner, you can prefer filing business bankruptcy under Chapter 13, which is known as wage earners’ bankruptcy.
4. Be honest and truthful with your attorney and tell him every single financial detail that will help your bankruptcy case. Talk frankly about your priority debts like alimony, child support, employee benefits due, etc. Remember to notify your lawyer about the number of creditors that you have and whether they belong to secured, unsecured or partially secured creditors.
5. If you’ve filed for bankruptcy under Chapter 11, the court will will need you to act as the case trustee (except in certain fraud cases) and act as a debtor in possession. A committee of creditors will be designated and you will be required to submit a reorganization plan to the court. The committee of creditors will then vote on your reorganization plan and if it is accepted, the court will confirm it. If you have opted for filing business bankruptcy under Chapter 7, you will have to provide a list of your non-exempt assets to the court, which will then dispose them and divide the proceeds among your creditors in order of their priority.
Filing a business bankruptcy may appear simple, but is more complicated than you can ever imagine. This is why it is necessary for you to hire a business bankruptcy attorney who have had extensive experience in dealing with the type of bankruptcy that you would be filing. Good luck.
Are you thinking about filing business bankruptcy? If you have questions, you would be wise to consult with a reputable and experienced chapter 11 bankruptcy attorney, and take into account all options before choosing what makes sense for your company.
Don’t Be Daunted By Those Business Bankruptcy Facts And Figures
A lot of businesses file for bankruptcy because of a number of reasons such as incapacity to pay business debts, needing more time to gather funds to pay debts or having unsuccessful product lines. Businesses hire bankruptcy attorneys to take control of the bankruptcy process, which could fall either under Chapter 7 or Chapter 11. A Chapter 7 bankruptcy is a liquidation, while a Chapter 11 bankruptcy is referred to as business reorganization. When the entire business bankruptcy process is through, the business becomes free of debts. The following are some of the business bankruptcy facts that you should know about:
1. There are debts that fall under priority debts. You cannot just avoid paying these debts or pay them in parts. The business owners are personally liable for debts like taxes, alimony, child support, student loans, court fines or penalties, criminal penalties imposed by the law, debts on account of injuries caused to others while driving under the influence of alcohol or drugs. The best business bankruptcy lawyers cannot help you with such priority debts.
2. The small business can only seek protection from debts that arose before the business filed its bankruptcy petition. Those debts that were obtained after the date of the filing of the bankruptcy petition could not be covered by the bankruptcy protection laws.
3. Clients are advised by business bankruptcy attorneys to list every debt incurred according to their schedule. If a debt is not listed, it cannot be discharged by the bankruptcy process.
4. If it is discovered that the business owner received any asset, including money, by fraud, then the debt will not be discharged by the court.
5. The court can deny the debt discharge in the event that it discovers an act of dishonesty by the business owner. Example of dishonesty could be lying, falsifying records, destroying property or records, destroying assets, disobeying court orders, etc.
6. Business bankruptcy lawyers can only help obtain a Chapter 7 discharge once in 8 years.
7. When the court discharges debts that are secured by an asset, like lien on an office building, it does not necessarily mean that the debt has to be paid in cash. The financial institution that holds the lien can take possession of the property and then sell it.
8. There are instances when the debtor may like to continue paying a debt even after the court has already discharged it. For example, if a business owner has obtained a loan for the purchase of a car and this loan has been discharged by the court, then the business owner can enter into a “Reaffirmation Agreement” with the lender and continue paying his debt (mainly because he needs the asset. The court supervises this type of agreement.
These are certain facts you have to be aware of before contacting or choosing from the best business bankruptcy lawyers.
Small business owners seldom consider bankruptcy unless serious financial pressures exist. If your business has slipped behind with creditors and you’re considering chapter 11 bankruptcy, there are additional solutions like business debt consolidation or debt management. Consider all options before filing for business bankruptcy.
Know What Business Bankruptcy Options You Have Before Seeking For Bankruptcy Protection
Before, the subject of bankruptcy was a touchy one. However, as time flies, people became more informed of what bankruptcy means, especially Chapter 11, which pertains to reorganization of the business. When a business finds it challenging to meet its financial obligations, a bankruptcy is almost certainly to follow. The required interest for the loans that the business needs to pay usually eats up the company’s income, thereby leaving the company financially distressed.
While there may be various business bankruptcy options available for a company, it is still essential for a business to weigh these options first, before deciding on one. There is also a need for a bankruptcy attorney to be employed by the company, one who is aware of the bankrupt laws that can be applied. In fact, bankruptcy lawyers can present the company with other doable options, and not just bankruptcy.
The following are several business bankruptcy options that are available for financially constrained businesses:
1. Chapter 7 - Liquidation. When businesses observe that there is no longer a chance for the business to become profitable because the product line was unsuccessful or confronted with insurmountable debts, then going after a Chapter 7 bankruptcy protection would be ideal. Chapter 7 is mainly for small businesses and sole proprietorships, where the business is linked to the individual business owners. In this type of bankruptcy, business assets are sold and the profits from the sale are used to compensate creditors. Once the proceedings are over, the company would not be in existence anymore.
2. Chapter 11 - Reorganization. This is preferred by companies with potentials but are hounded by debts. This enables a company to reorganize the structure and the manner by which it performs operations, hence giving more time to the company to pay up its debt. The company needs to submit a reorganization plan together with its petition for bankruptcy, which must be accepted by its creditors. If creditors approve the reorganization plan, then the company must abide by the terms in the plan. When the creditors are paid and the plan has been executed fully, then the debts of the company are wiped out.
3. Chapter 13 - Wage Earner Plan. This is called a wage earner’s bankruptcy since it is meant for sole proprietors who got his personal and business assets combined together, thereby enabling him to pay off debts using his wages. This can help protect a sole proprietor’s personal assets.
4. Chapter12 - Family Fishermen Bankruptcy. Farmers and fishermen can find protection from their creditors under Chapter 12 bankruptcy.
These are the different business bankruptcy alternatives that you can choose from. Businesses have to take into account whether it would need liquidation or mere reorganization, take a look at secured debts, tally all their resources, and take time to ponder upon whether or not to hire a business bankruptcy lawyer to handle bankruptcy filing.
Small businesses seldom look into bankruptcy except when there are serious financial pressures. If your company has slipped behind with lenders and you’re considering chapter 11 bankruptcy, there are additional possibilities such as business debt consolidation or debt management. Think about all possible choices before declaring business bankruptcy.
Is Filing A Business Bankruptcy Under Chapter 11 Your Best Option?
There are two options that you can consider when you are thinking of seeking business bankruptcy protection. You could either go for a Chapter 7 bankruptcy or for a Chapter 11 bankruptcy. In Chapter 7 filing, you will have the federal court that presides over your petitioning appoint a trustee who for all intents and purposes becomes the temporary owner of your assets and your business. You will be made to sit on the sidelines while this trustee decides what management to fire, what new management to hire, how to pay off your creditors with your assets, how the business can be better structured and operated, and so on. Chapter 7 business bankruptcy filing may be your best option (or even your only viable option), depending on your circumstances. Yes, it is still something that is there for your protection and the protection of your creditors. However, some businesses facing bankruptcy may find it more desirable to file for Chapter 11 protection.
Chapter 11 business bankruptcy filing allows you to retain command and control over your business operations and business assets. The stipulation from the court is that you must appoint your management team to become a “debtor-in-possession”, or DIP. This DIP acts as an agent that negotiates agreeable payment plans with your creditors. The payment plans could be in the form of periodic partial payments to the creditor, until the time that the debt is fully satisfied. There are also creditors who would agree to a much lesser amount than what is really due them, and who are ready to cease legal collection attempts in lieu of the payment. The DIP acts like a trustee appointed by the court, only that he comes from your organization, and not appointed by the court. In fact, no one is appointed by the court. The DIP is going to have the business’ best interests in mind, whereas a court appointed trustee cares more about paying off creditors.
Whereas Chapter 7 business bankruptcy filing is about liquidation, Chapter 11 filing is “only” about restructuring. This means that the operations and composition of your business get changed around so that debts can be paid in a timely manner while the business continues to operate and grow. This may necessitate you to lay off workers, either permanently or temporarily, and may even warrant you to excise one entire department. The DIP will be the one who will oversee the whole process and ascertain what caused the inefficiencies among the company, which eventually resulted to the inability to pay up creditors in a timely manner, and will make sure that those responsible for such inefficiencies are eliminated. The federal court overseeing your Chapter 11 filing will have you and your creditors periodically report on the progress of activity.
In the event that some or all of your creditors remain unsatisfied with the actions of your DIP, they can petition the court to replace the DIP with its own appointed agent. This surely is not to the advantage of your business. Therefore, when you go to file for Chapter 11 business bankruptcy you should definitely hire an attorney who is an expert in business bankruptcy law. His title will be “Debt Relief Agent”. Your lawyer can give the proper advice to your DIP, and will be able to negotiate with creditors. That way, filing for Chapter 11 business bankruptcy would not result to your business’ destruction.
If your business needs bankruptcy protection, first seek the advice of a bankruptcy lawyer who can advise you on which filing option would be better for you. Likewise, you might also find an alternative solution to filing bankruptcy. Filing for business bankruptcy should be considered as a last resort when searching for ways to save your business.
Bankruptcy may make sense for many business owners. However, when business debt has grown to become too much, there are other options. Business debt consolidation or debt management might be able to help a company get out of debt without filing chapter 11 business bankruptcy.
Business Bankruptcy And The Basics Of Filing
Individuals, creditors and businesses are protected by the bankruptcy law of the United States. The United States bankruptcy laws facilitate and enable businesses to reorganize their debts so that creditors are paid without destroying the business in the process. The same laws also facilitate and enable an orderly liquidation of the assets to pay off the creditors, and divide businesses that are already failing, allowing other parties to buy up portions of the business in the efforts of making it successful. Therefore, the bankruptcy laws protect the business, the owners of businesses, operators and creditors of the business, consumers, and the economy as a whole.
The federal courts of the United States is the one that presides over bankruptcy cases. In 1978, the federal law established two types of bankruptcy namely, Chapter 7 and Chapter 11. There is also what is known as Chapter 13 bankruptcy, but incorporated businesses cannot file under that type. Self-employed individuals, however, may file under Chapter 13.
For a business, Chapter 7 means filing a petition for bankruptcy which then results in there being a court-appointed interim trustee who gets control of all non-exempt business assets and accounts. This appointed and temporary trustee has broad power over the business during his appointed time. Finding unsecured financing, making managerial changes, and liquidating assets so as to pay off creditors while trying to keep the business from total failure are all within the scope of the trustee’s powers. Chapter 7 bankruptcy is the option for liquidation.
Chapter 11 is the bankruptcy option that has to do with reorganization. With a Chapter 11 bankruptcy, the court oversees the process by which the debtor business and its creditors work out payment arrangements that would be mutually beneficial and to provide them with a solution. The control of the business, as well as the possession of the assets, remain with the business’ principals. In court records, the business management team is the “debtor-in-possession”, or DIP, and there is no appointed trustee. However, if the creditors come to the conclusion that there is no viable solution being arrived at by the DIP and assets are continuing to be mismanaged, they can petition the court to intervene and appoint its own agent to replace the DIP. For the federal court to do this intervention, it must be satisfied with evidence that the creditors are correct in their assessment of continued mismanagement.
The forms filed by the business in federal court, like those that document the business’ assets and liabilities, should be perfectly accurate and filed in the correct manner. The business may lose its bankruptcy protection, and the business could be totally lost, if it fails to accurately and correctly file the forms needed. Therefore, if you own a business either alone or with partners and you deem that you may need to file for bankruptcy, you should consult a bankruptcy lawyer. Working in this capacity with you, the lawyer will be put on file by the court as a “Debt Relief Agent”.
Small businesses hardly ever take into consideration bankruptcy except when there are serious financial pressures. If your company has slipped behind with lenders and you’re thinking about chapter 11 bankruptcy, there are other possibilities such as business debt consolidation or debt management assistance. Consider all possible choices before filing for business bankruptcy.
