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Business Bankruptcy

Businesses fail for many different reasons, leaving owners contemplating possible courses of action. In some cases, bankruptcy is necessary. With more than 25 years of experience representing businesses, Gertler Law Group, LLC, can help you use bankruptcy or negotiated workouts as tools to resolve business insolvency issues.

If your business is struggling to meet financial obligations, bankruptcy may provide you with some relief. Is bankruptcy appropriate for your specific circumstances? The answer can depend on multiple factors:

  • The form of your business, such as a sole proprietorship or corporation.
  • Whether you intend to keep running your business, close it down or sell it.
  • Whether you hold personal liability for debts your business has incurred.
  • The types and amounts of your business debts.

When you file bankruptcy on behalf of your business, you embark on a federal court process designed to help you eliminate or repay debts. Several types of bankruptcies exist; your bankruptcy attorney will assist you with determining which is appropriate for your specific situation.

Chapter 7 Bankruptcy

For sole proprietors, Chapter 7 bankruptcy holds a significant advantage: You may be entitled to discharge both your business and personal debts without a requirement to make payments over a period of time. Chapter 7 bankruptcy also may allow you to retain ownership of some types of assets that are exempt.

For assets that are not classified as exempt, the item will be sold and the proceeds distributed to creditors. If you don’t own a significant amount of assets, Chapter 7 may be a good option because it can allow you to keep some or all of your property.

If you own a small business, a Chapter 7 bankruptcy may allow you to either keep your business or liquidate it without excess complications. In addition, Chapter 7 can help relieve you of personal liability for business debts. When you file Chapter 7, creditors immediately must cease most collection activity.

If your business is a partnership or a corporation, no debts are discharged, and there are no exemptions. Your business assets will be sold, and the proceeds will be distributed among your creditors. The process can be advantageous for you, because you’re relieved of the burden of trying to collect accounts receivable or sell equipment and other assets.

Chapter 13 Bankruptcy

Under a Chapter 13 bankruptcy filing, a business can continue operating. However, if you choose to continue operations while under a Chapter 13, you’ll need to ensure that the business has sufficient cash flow to meet monthly financial obligations. A Chapter 13 can be an appropriate option in a number of scenarios:

  • If you want to continue operating your business and it generates enough income for operations and for a reduced payment to creditors each month.
  • If you do not qualify for Chapter 7 but still wish to have protection from creditors.
  • If you want to retain ownership of more assets than is allowed under a Chapter 7.

A Chapter 13 can help you reorganize your debts — using a payment plan to pay off obligations in full or in part — and potentially save your business in the process. A repayment plan under a Chapter 13 typically lasts between three and five years; you’ll make monthly payments to a trustee who, in turn, pays your creditors under the terms of your plan.

Only individuals are eligible to file Chapter 13; businesses that are considered separate legal entities such as corporations may not file Chapter 13. Sole proprietorships and some partnerships are not considered to be legal entities separate from their owners, so if you file Chapter 13 as an individual, your business receives the same benefit.

Chapter 11 Bankruptcy

A third bankruptcy option for businesses is Chapter 11. In some cases, it is the only available option for a small business owner who prefers to continue operating while restructuring a business that is a limited liability company, corporation or partnership. Chapter 11 also may be the lone option available for individuals who wish to reorganize but owe too much business debt to meet the eligibility requirements for a Chapter 13.

Under a Chapter 11, the bankruptcy court approves a reorganization plan that allows you to restructure your business finances. By adjusting payment terms and lowering your financial obligations, you can align your expenses and income, allowing your business to continue operating as you return to profitability.

Taking the First Step

If you are having difficulty meeting business financial obligations, bankruptcy may be a viable option. The first step is working with an experienced business bankruptcy attorney to determine whether bankruptcy is appropriate for your situation. To schedule an initial consultation, please contact Gertler Law Group, LLC.