Frequently in this blog, we touch on the manner in which bankruptcy impacts business. Many big-name businesses have been facing financial difficulties or have even filed for bankruptcy in recent months, such as Sears, Gibson Brands Inc., and Andy Warhol’s Interview magazine, just to name a few. It seems scary that these businesses have been facing financial adversity, seeing as they’re well-known and have had frequent and loyal customers for so long. But depending on the chapter a business chooses when filing for bankruptcy, there may be a light at the end of the tunnel, so-to-speak. Continue reading to understand the difference between business bankruptcy chapters.
Referred to as liquidation, this chapter of bankruptcy may be appropriate for companies going out of business, or dissolving. In this chapter, the assets of the business are sold, or liquidated, and the money, if any, is distributed by the court-appointed trustee to the creditors in order of priority (e.g., secured claims, taxes, unsecured claims). Unless the debtor is a sole proprietorship, corporations and/or LLCs filing a Chapter 7 do not get a discharge. The entity’s assets are liquidated and that is that. From the point of view of an owner of a closely held corporation or LLC, there exist less intrusive methods to liquidate a business if the time has come. By contacting the Law Office of Barry R. Levine, you will be able to discuss these other alternatives to a Chapter 7 for your business.
A Chapter 11 is known colloquially as a reorganization. A business may choose to file under this chapter in order to continue operating while it reorganizes its debts. In a Chapter 11 bankruptcy, the business will file a reorganization plan, which details how and when the creditors will receive payments. This plan will have to be reviewed and approved by both the creditors and the court. Beware, though, that this is a slow process and it can take up to a year or more to be approved in many cases. Also, it is worth noting that not all businesses are successful in filing under this chapter. Nine out of ten do not make it through the first year post-confirmation. Again, if you are the holder of a closely held corporation or LLC, there may exist other avenues to explore when a business is faced with overwhelming debt. Debt takes many forms and depending upon whether or not the pressure is coming from a secured creditor, the taxing authorities or unsecured creditors, the method for dealing with same may differ. By contacting the Law Office of Barry R. Levine, you will be able to discuss these other alternatives to a Chapter 11 for your business.
More widely known as a personal bankruptcy for consumers, sole proprietors may choose to file for Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, which ostensibly liquidates assets to pay debts, a business owner’s exempt personal assets will generally be secure in a Chapter 13 bankruptcy, however, to the extent that there is secured debt associated with any asset used in the business, payments must be kept current while arrears are paid down through the plan. The sole proprietor of the business will file a repayment plan addressing these issues which will ultimately be approved of by the court. The terms of the repayment plan depend on the business owner’s income, the liquidation value of his/her assets, and the monthly surplus income generated by the sole proprietor’s business. The terms of the plan can be between 36 and 60 months.
It is important to remember that bankruptcy should only be used as a last resort. If you’re struggling with debt, your first step should be to contact your creditors and explain to them your situation. They may be understanding and withhold contacting you for a time while you figure out your financial situation. Most of the time, this is an exercise in futility. You would also do well to consult with a bankruptcy lawyer. At the Law Office of Barry R. Levine, we can review your financial status and suggest alternatives to bankruptcy. Remember, only seek bankruptcy after all other avenues have been exhausted. Contact the Law Office of Barry R. Levine today by phone at 978-922-8440, or visit our website at http://levinelawoffice.com.