With so many retailers having filed bankruptcy this past year, including BCBG, Payless, Toys R Us, and Radio Shack, to name a few, it is no surprise, that sometimes, unfortunately, businesses can fail. Continuing to operate a small business that is in debt, while dodging aggressive creditor collection efforts, is a challenging uphill battle. If you are a small business owner struggling with debt, bankruptcy might help you stay afloat and in business, by restructuring while inside the protective bubble of the automatic stay.
There are different kinds of bankruptcy available. Knowing which one to file based on type of business entity, amount of debt, and future goals, is key. There are bankruptcy chapters for farmers and municipalities in addition to the ones being addressed here, but today we will focus on the three most common chapters.
Chapter 13 bankruptcy is only available to individuals and sole proprietors/self-employed debtors, with regular income and no more than $383,175.00 in unsecured debt and $1,149,525.00 in secured debts. In a chapter 13 bankruptcy, you come up with a repayment plan and make monthly payments for three to five years. A repayment plan of three to five years with the automatic stay shielding you from debt collectors’ calls and actions, can potentially help you keep your assets and continue operating your small business.
However, if your debt exceeds the limitations stated above or your business is a separate entity, such as a limited liability company (LLC) or corporation, chapter 13 is not an option for you. Instead, you may opt to file for chapter 11 reorganization (if your intent is to continue operations). Chapter 11 allows you to stay in business and restructure the business debts. If your small business files for Chapter 11, your small business would have to propose a restructuring payment plan within 300 days and make payments based on the reorganization plan. Unlike chapter 13 plans, payments do not have to be made on a monthly basis; it can be under a different schedule, and payments do not start until a plan is confirmed (approved). Also, payment plans can be three to five years as in chapter 13, or in certain situations, can extend past five years. Chapter 11 cases run at a slower pace than chapter 13, which for businesses is usually beneficial as negotiations and restructuring are usually finalized or close to it by the time a plan is proposed. You will also have to file monthly operating reports so that the court may see if your restructuring plan is working. If you complete the approved plan, the rest of the debt should be discharged.
Alternatively, if you intend to cease operations or have already done so, yet your business has assets and many creditors, filing for chapter 7 liquidation bankruptcy of your business may help you avoid the hassle of liquidating assets to pay creditors on your own. Sometimes starting fresh is the least costly and less stressful way and you may subsequently open a new business and start anew, if that is your goal.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 1,800 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you.