If you are a Texas Small business owner, and your Small Business is experiencing debt problems that are temporary, or more serious financial problems that your small business may not recover from, filing a Business Bankruptcy may be an option. Bankruptcy laws were designed to give small businesses and big businesses options to address their financial problems.
When your Texas Small business has debt that has become unmanageable or getting out of control, contact the Texas Small Business Bankruptcy Attorneys at The Law Offices Of R.J.Atkinson. We can explain your options to deal with small business debt and the problems that go along with it at a free initial consultation. Whatever small business financial problems you may be experiencing, we can help you to make an informed decision about your company’s debt.
Small Business Bankruptcy Options&hellip
When a small business is having problems with debt, their debt problems can often cost the small business more than the amount of the debt itself. A Small Businesses’ reputation, their employee’s morale, the product or service the produce, and overall credibility are some of the intangibles that can be affected when a small business has financial problems. What can be considered a small debt problem for a small business can easily evolve into bigger problems when collection actions begin. This is especially the case when there is personal liability or personal guarantees involved. I.R.S. Problems like payroll taxes, debt related lawsuits, or commercial litigation of any kind can financially strain a small business to consider bankruptcy. When a small business is in financial trouble, vendors & suppliers along with others in their industry can get wind fairly quick. This can make things go from bad to worse.
The Federal Bankruptcy Laws can sometimes help small businesses to deal with their debt by allowing them to either liquidate or reorganize under the protection of the Bankruptcy Code. Depending on what type of business structure or business entity the small business may be., the existence of personal guarantees, the type of small business, the amount and type of assets, and a variety of other considerations will affect & determine which Chapter of Bankruptcy may be best for a small business.
The following is an overview of the Bankruptcy Options available for Small Business:
Chapter 7 Bankruptcy for Small Business
Small Businesses use Chapter 7 Liquidation Under The Bankruptcy Code in situations where it seems unlikely that the small business will recover from financial difficulty. In cases where a small business will most likely never be able to pay its debts or continue as an ongoing small business concern, Chapter 7 Bankruptcy can be the best or the most appropriate bankruptcy option. In a Chapter 7 bankruptcy, the small business debtor turns over all of it’s assets, over to the Chapter 7 Trustee, in order to be sold to satisfy the small businesses’ creditors.
Bankruptcy under Chapter 7 of the Bankruptcy Code is often referred to as “liquidation bankruptcy” or a "straight bankruptcy.” Under Chapter 7 Bankruptcy, a small business must cease all operations and allow the Bankruptcy Court to liquidate all assets to pay the debts. All types of business entities may use Chapter 7 Bankruptcy to liquidate.
A small business debtor begins the bankruptcy process by filing a petition with the local Bankruptcy Court. Once the Chapter 7 Bankruptcy petition is filed, an “automatic stay” goes into effect and the creditors are prohibited from making any attempt to collect their debt, including attempting foreclosure and repossession. Along with the petition, or shortly thereafter, the debtor files various written “schedules” and “statements” to inform the Court of its outstanding debts, its current income and expenses, any existing contracts, any current or potential lawsuits, and any recent asset transfers. Upon receipt of the Petition, the Court appoints a Bankruptcy Trustee to handle the debtor’s case. The Trustee collects and sells the assets of the business and uses the proceeds to pay off the creditors. Once the Trustee sells all of the assets and distributes the proceeds, the Bankruptcy Court discharges the remaining debt and concludes the bankruptcy proceeding.
The main benefit of filing a Chapter 7 filing for a small business is The Automatic Stay, which allows the small business to dissolve without the harassment of their creditors. Small Businesses are eligible to file Chapter 7 but they are not allowed to keep any property. Even after the trustee liquidates the assets of the small business, the business does not receive a discharge.
Chapter 11 Bankruptcy for Small Business
Under Chapter 11 of the Bankruptcy Code, businesses can reorganize their debts and pay them off over time. Unlike Chapter 7, Chapter 11 allows businesses to continue to operate while repaying their debts. Businesses may be given up to six (6) years to repay debts. Although it offers businesses the option of remaining in operation, the Chapter 11 proceeding is time consuming and expensive.
Chapter 11 can choose to be designated as a special type of Chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the Bankruptcy Court) and in which the debtor is subject to more oversight by the U.S. trustee than other Chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy. A Small Business Debtor is defined by the Bankruptcy Code as a Chapter 11 debtor with liquidated debts not in excess of $2 million who elects treatment as a small business debtor, excluding a debtor whose primary activity is owning and operating real estate. Small business debtors are the subject of Bankruptcy Code Section 101(51C).
A small business Chapter 11 Debtor begins a Chapter 11 in the same way as a Chapter 7 Bankruptcy — by filing a petition with the local Bankruptcy Court. As in the Chapter 7 case, once the petition is filed, an “automatic stay” goes into effect and the creditors are prohibited from making any attempt to collect their debt, including attempting foreclosure and repossession. Also like the Chapter 7 case, the business debtor in the Chapter 11 case files various written “schedules” and “statements” to inform the Court of its outstanding debts, its current income and expenses, any existing contracts, any current or potential lawsuits, and any recent asset transfers. Upon receipt of the Petition, the Court appoints a Bankruptcy Trustee to handle the debtor’s case. The small business debtor then proposes a reorganization plan to the Bankruptcy Trustee for approval by the Court. The proposed reorganization plan includes a proposed debt repayment schedule and may include a request to terminate burdensome contracts and leases and recover assets. The business begins to operate under the reorganization plan once the Court approves the plan. Upon successful completion of the plan, the Court will discharge the balance of the business’ debts and conclude the bankruptcy.
Chapter 13 Bankruptcy for Small Business
Chapter 13 is only available to sole proprietors. Sole proprietors cannot use Chapter 13 to file bankruptcy for an entity business. Sole proprietors must file as individuals to take advantage of Chapter 13 but can include business debts for which they are personally liable. The Chapter 13 bankruptcy proceeds in the same manner as the Chapter 11 bankruptcy except that execution of the approved repayment plan does not require as much activity by the debtor.
Chapter 13 Debtors who are engaged in business have many other requirements to comply with in a Chapter 13 case. If your Small Business Has Debt Problems or Financial Difficulty Contact Us
The Small Business Bankruptcy Attorneys at The Law Offices Of R.J.Atkinson can help you to explore your small businesses’ options in bankruptcy at a free initial consultation. If your small business is having debt problems, there are also alternatives to small business bankruptcy such as forbearance agreements, voluntary receiverships, UCC Article 9 Sales, dissolution of a business entity, composition agreements, out of court workouts and settlement arrangements, assignments for the benefit of creditors, as well as simply letting the business be. Whatever debt problems your small business may be experiencing, it is a good idea to get advice from an experienced bankruptcy attorney who can go through the bankruptcy and non-bankruptcy alternatives for your small business.
Debt problems for businesses can be quite complicated, so if you or your business is facing financial difficulty and you are considering filing a bankruptcy, contact The Law Offices Of R.J.Atkinson today. With offices in Austin, San Antonio, Houston, Dallas, Waco, Plano, New Braunfels, we can help you decide if Business Bankruptcy is right for your company. Contact Us for a business bankruptcy evaluation.
Small Business Bankruptcy | Alternatives to Small Business Bankruptcy | Bankruptcy Law