Business Bankruptcy Attorney

Bankruptcy happens; unfortunately a large percentage of small businesses do not make it. The reasons for this vary with each business. The current economic climate has increased the number of small businesses that are forced to file bankruptcy. Many business owners do not understand what bankruptcy is, and how it should be managed. There are a number of bankruptcy types; choosing the right one for your situation is very important.

Bankruptcy is a legal process that seeks to help your business pay its debts under the supervision and protection of a bankruptcy court. Depending on what Chapter you choose to file under the process is described as liquidation or “reorganization”. Deciding which option is best for your business is a choice you should make with the help of an attorney. An attorney can provide you with specific legal information pertaining to your case, and offer valuable advice on your best options.

There are three main types of bankruptcy or chapters you can file under depending on your business’ structure: chapter 7, chapter 11, and chapter 13. If you are the sole owner of a business your business is an extension of yourself, which means you are personally responsible for its debts, and you can file under all three chapters. Partnerships and businesses with a corporation structure are a separate legal entity from their owners, and can file under Chapters 7 and 11.

Let us now look at each Chapter separately and see their “benefits” and drawbacks.

Chapter 7

This type of bankruptcy is often called a liquidation of assets. It is best used when the business has no chance of making a comeback, and there is no benefit in restructuring the firm. This is the case when the debts incurred by the business are so large there is no chance they will ever get paid.

If you are the only owner of a business that is deep in debt, without chances of recovery, and the business is pretty much an extension of your “working skills” it often does not make sense to try to reorganize, or restructure it. For instance, if you own a plumbing business that is failing, where you are the main worker, and do not have many assets linked to it, Chapter 7 could be your best option.

When you file for Chapter 7 the bankruptcy court appoints a trustee to take control of the business’ assets and divide them between the creditors. The main advantage of filing under Chapter 7 is that once the business assets are distributed the owner gets a “discharge”, which means he is released from any responsibility for the debts. This is not an option for partnerships and corporations; they cannot apply for a “discharge”.

Chapter 11

This is the type of bankruptcy businesses that still have a chance of making it apply for. When you file under Chapter 11 you get a court appointed trustee that files a “plan” to deal with creditors in the fairest and most equitable way possible. The main advantage of this option is that the trustee can be the owner of the business, which allows him to keep control of his company through the bankruptcy. The plan can reorganize the business, and payments to creditors over long periods of time that can even exceed 20 years.

It is a good option for companies that go through “bad times”, but are still a potentially profitable business. The drawbacks on this option are that Chapter 11 plans must be voted on, and approved by the creditors. They are generally very complex, and can take a long time to get approved. A typical Chapter 11 bankruptcy takes a year to get approved, and not all succeed.

Chapter 13

This is the option most often used by consumers, but can also be applied for by sole proprietorships. The main differences between filing under Chapter 13 and Chapter 7 are that with a Chapter 13 bankruptcy you can still keep some of your assets, like your home, or your car. When you file for this type of bankruptcy you must provide a feasible plan that describes how you will pay your creditors. How much you will have to pay will depend on your income and the assets you own. This method can help sole owners of failing businesses, whose assets are intertwined with their business to keep their homes or other vital assets.

Deciding if to file for bankruptcy, or under which Chapter, is a very important decision you should discuss with a qualified attorney. There might even be alternatives to bankruptcy, so make sure you are taking into account all your possibilities.