Many small business owners struggle with debt. This can stem from using credit cards for business expenses or putting personal assets like home mortgages up as collateral on business loans.
When facing unmanageable debt, small business bankruptcy lawyers can provide relief through a variety of options. The best choice depends on how your company is legally structured, such as a corporation, partnership or sole proprietorship.
Chapter 7
If a business is insignificantly financed and cannot meet its debt obligations, filing for Chapter 7 bankruptcy may be the best option. This chapter allows the trustee to liquidate assets, which are turned into money for creditors. This may include personal items, real estate, and even vehicles. It is possible to keep some property if the owner files for personal bankruptcy as well, which will reduce filing fees and attorney costs.
A bankruptcy attorney can file on behalf of a small business, which reduces the cost of filing fees and administrative costs. She can also help develop a plan to pay down debt, which must be approved by the court. The bankruptcy laws allow debtors to qualify for a discharge of eligible unsecured debt when the reorganization plan is confirmed by creditors and the court. If you are unable to afford an attorney, you can apply for pro bono assistance from the legal aid society.
Chapter 11
Unlike Chapter 7, there is no minimum debt requirement to file for bankruptcy under Chapter 11. You also do not need regular income to qualify. A Chapter 11 plan of reorganization must address how you will bring in funds to pay your debts. This includes a plan for selling assets and shuttering portions of your business. A knowledgeable attorney will know how to deal with the rights of interest holders, including shareholders and members of a limited liability company.
An experienced bankruptcy attorney will also know how to deal with creditors who violate the automatic stay. The goal is to get a plan confirmed by a majority of affirmative votes from creditors. This is often accomplished through a process called “cram down.” A successful cram down will provide a return better than the value of the creditor’s claim in liquidation. This is usually achieved through a creative and unique plan.
Chapter 13
In the case of a small business, bankruptcy may be the best way to restructure debt and pay it off while keeping the business running. However, the process is complex and one size does not fit all. A Chapter 13 bankruptcy allows an individual, married couple that runs a small business as a proprietorship or partnership to develop a reorganization plan and repay debt over time while continuing operations.
The Chapter 13 process also protects a debtor from wage garnishment and aggressive credit collection. The Chapter 13 payment plan expires after three to five years and any remaining unsecured debts are discharged. However, the debtor must remain current on all child and spousal support obligations and any property equalization payments.
A qualified bankruptcy attorney will evaluate your finances and determine the appropriate form of bankruptcy to help you resolve your financial issues. This will include a full review of your debt, assets, and income. A lawyer will explain how the law works and whether certain assets are exempt from being used to pay creditors.
Costs
If your small business is struggling, it may be time to consider bankruptcy. But the costs associated with it can be prohibitive. You will need a lawyer to help you with the process, and they won’t come cheap. In some cases, you can hire a petition preparer to fill out your paperwork for a lower fee, but they won’t provide any legal advice.
Attorney fees vary depending on the size of the case and where it’s filed. A presumptively reasonable fee for a Chapter 7 case is around $3,000, although this will vary according to your location and the complexity of the case. It’s also worth checking the federal PACER website to see what other attorneys are charging for similar cases in your area. In some cases, you can find a better deal by looking for a bankruptcy trustee. A bankruptcy trustee will sell your business’s assets and pay your creditors. In this type of bankruptcy, your personal assets will remain protected.
