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Many small business companies stop working because of various factors, and frequently find themselves faced with deciding if filing for bankruptcy protection can improve the situation. Bankruptcy is a procedure you experience in federal court, designed to help your organisation get rid of or settle its financial debt under the guidance and protection of the bankruptcy court. Business bankruptcies are typically described as either liquidations or reorganizations depending upon the type of bankruptcy you take.
Depending on your company type, there are three bankruptcy options available for you. Sole proprietors are lawful extensions of the owner. The owner is accountable for all properties as well as debts of the company. A sole proprietor can choose between Chapter 7, Chapter 11, or Chapter 13 of the Bankruptcy Code. Corporations and partnerships are legal entities separate from their owners. Because of this, they can file for bankruptcy protection Chapter 7 or Chapter 11.
Business Bankruptcy – Chapter 7
Chapter 7 bankruptcy may be the most effective choice when the business has no future. It is generally described as liquidation. It is generally used when the debts of business are so overwhelming that restructuring them is not feasible.
Chapter 7 is also a good option when business does not have any kind of significant possessions. If a service is simply an expansion of a specific proprietor’s skills, it normally does not pay to reorganize. Chapter 7 bankruptcy generally suggests that the business is dissolved.
In Chapter 7 bankruptcy, a trustee is appointed by the bankruptcy court to seize the assets of business as well as distribute them among the creditors. Once creditors got what they lent and the trustee is paid, a sole proprietor obtains a “discharge” at the end of the case.
A discharge means that the business owner is released from any type of responsibility for debts. On the other hand, partnerships and corporations do not receive a discharge.
Business Reorganization – Chapter 11
Chapter 11 is a better solution for business that might have a future. Chapter 11 is a strategy where a company reorganizes and keeps on working. It is reorganized under a court-appointed trustee. In this case, the business owner might in fact be the trustee him/herself.
The company should provide a detail plan of reorganization outlining how it will handle its creditors which later vote on the plan. If the court considers your strategy to be fair and equitable, chances are your plan will be approved.
According to such reorganization plans, the company may be able to make payments to creditors for as long as twenty years. This may be useful if the amount of money is big and cannot be paid in the short term. However, Chapter 11 may be exceptionally complex and complicated if you’re not working together with an experienced Chattanooga Bankruptcy attorney. It usually takes over a year to confirm a plan without professional legal help.
Personal Bankruptcy – Chapter 13
Though Chapter 13 bankruptcy is intended for reorganization of personal assets and properties, it still can be used for sole proprietors. You file a repayment plan with the bankruptcy court outlining exactly how you are going to settle your financial debts.
The amount you need to pay back depends on not only how much you owe, but also your income and assets you own. If your personal assets are entailed with your company ones (this is typically the case for sole proprietors), you can stay clear of problems such as losing your house if you submit Chapter 13 versus Chapter 7.
As you can see, there are many options for a business that faces financial difficulties. But which to choose? McKoon, Williams, Atchley & Stulce, PLLC recommends to consult with a good Chattanooga bankruptcy attorney prior to making such an important decision. Our services range from debt consolidation to representing your interests in bankruptcy court – and everything in between. Call us today for a free consultation and start the process of getting your business back on track.