Considering Bankruptcy For Your Business

All businesses, at one time or another, experience a ‘rough patch’.  Sometimes all you need is time – time to re-evaluate and reorganize your business, time to focus on growth, efficiency, customer service, sales and relationships.

Questions to think about:

  • Is it getting more difficult for you to meet your financial obligations?
  • Are your vendors getting impatient and making it harder to do business?
  • Have you fallen behind on your taxes?
  • If you had the time to restructure – how would you change things?
  • Are you up for the challenge?
  • Are you ready to steer your business through these tough financial waters?
  • Are you ready to consider bankruptcy?

Chapter 11 may be the solution for your business.  Your business under the protection of bankruptcy’s Automatic Stay – buys you time, up to twelve months to correct past mistakes, reorganize/restructure your business to increase sales, improve efficiency and be profitable.

Chapter 13 also under the “Automatic  Stay” protection on a smaller scale, with different restrictions and timelines.  It is always recommended not to wait too long because Chapter 11 and 13 are federal laws designed to offer viable businesses time to reorganize and prosper.

It’s best, when considering bankruptcy, to seek out an experienced, board certified business bankruptcy attorney for a free consultation to get a clear understanding of the process, what to expect and what is expected of you in order to be successful.

Are you ready? We are ready to help.

Business Chapter 7

A business Chapter 7 results in the closing of a business and the liquidation of its assets. A Chapter 7 Trustee is appointed by the Bankruptcy Court to oversee the process and make sure that creditors are handled appropriately. Creditor hierarchy is determined by bankruptcy laws. The business assets are sold and divided amongst creditors after the fees and expenses of the Trustee are paid. Your bankruptcy attorney files a petition with the Bankruptcy Court which includes financial information and a list of creditors and dollars owed. A Meeting of Creditors (341 Meeting) is held approximately 30 days after your case has been filed. There are general questions you will be asked by the Chapter 7 Trustee and on occasion creditors may attend and ask questions. When your Meeting of Creditors has been concluded your case is on track for completion/discharge.

Business Chapter 13

If you are sole proprietor of a small business that needs financial reorganization and has adequate income from the business and other sources to provide for your basic living expenses plus your ‘Plan Payments’ to the Chapter 13 Trustee, you may qualify for a Chapter 13 bankruptcy. Under Chapter 13, the Debtor repays creditor arrearages over a 36 to 60 month payment plan as long as your unsecured debt is under $360,475 and your secured debt is less than $1,081,400. A Chapter 13 bankruptcy allows you to keep your exempt assets and continue business as usual. The amount of debt you repay your creditors is determined by your earnings, amount owed and your basic living expenses.

Chapter 13 can be an attractive alternative to a Chapter 11 for some businesses because the cost a Chapter 13 is much less and you make only one payment to the Chapter 13 Trustee who in turn disperses the money to your creditors.  The disadvantage of a Chapter 13 is that the first Plan payment must be made thirty (30) days after your case has been filed and all arrearages must be paid within sixty (60) months.

Business Chapter 13′s are more complicated and it’s important to seek a business bankruptcy attorney when considering Chapter 13 for your business. Omar Maynez of Maynez Law is a Board Certified Business Bankruptcy Specialist.

Consumer Chapter 7

Chapter 7 Bankruptcy will eliminate (discharge) unsecured debts such as credit card debts, medical bills, most personal loans, judgments resulting from car accidents, judgments on repossessed vehicles, some older tax debts (over 3 years old), payday loans and garnishments.

Certain debts cannot be eliminated (or can be under very specific circumstances):

  • Most tax debt under 3 years old
  • Student loans
  • Child support payments
  • Alimony
  • Home mortgages *
  • Car payments *
  • Other property securing a debt *

From beginning to end, a Chapter 7 Bankruptcy takes an average of four (4) months.

The new bankruptcy law requires pre-qualification for Chapter 7 filings. A Means Test determines whether your monthly income for a family of your size falls above or below the median income in Texas (or in your state). Approximately 96% of all Chapter 7 requests qualify. If you are of the small minority that does not qualify – you still have the option of filing a Chapter 13.

*If you want to keep your home, car(s), and property securing a debt. All secured loans must be reaffirmed through the bankruptcy court

 Consumer Chapter 13

Why consider chapter 13?

  • If you have fallen months behind on your mortgage and fear foreclosure
  • If you have fallen months behind on your vehicle(s) and fear repossession
  • If you don’t qualify for a Chapter 7
  • If you owe taxes over the last 3 years

 Chapter 13 Formula

Chapter 13 is a three (3) to five (5) year payment plan. During these thirty six (36) to sixty (60) months you pay what is deemed an affordable amount. There is a formula that determines ‘affordable’ :

  • Monthly income of the individual(s)
  • Monthly expenses of the individual(s)
  • Amount & nature of debts
  • Means Test
  • Disposable Income

Benefits of Chapter 13

Chapter 13 helps you reorganize your debts so that you can keep your home, your cars, all of your secured debt (if you choose) and reduce your unsecured debt. Filing Chapter 13 will stop the creditor harassment at home, at work, stop calls to family & friends; stops lawsuits, stops threats of lawsuits, stops repossessions and stops foreclosures.

Chapter 13 Downside

Chapter 13 is a debt repayment plan. Percentage of successful Chapter 13′s is not as high as one might hope (completing all the plan payments). This financial commitment requires that your earnings remain the same and that you not experience any challenges that affect your income – IE: divorce, illness, loss of job. If this should occur contact your bankruptcy attorney to see if you can get your plan payments modified or put on hold temporarily. Don’t procrastinate. Bankruptcy is serious business and Chapter 13 requires serious consideration.

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