Posted by on Oct 26, 2014 in Finances | 1 comment

Insolvency puts the existence of any business firm at risk and no firm will definitely want to end up losing more money than gaining profits. But when debts reach an amount which a firm can no longer pay, then the firm will have to find a way immediately to save itself and not cease operations.

There are actually numerous legal options that individuals and businesses can pursue to get out of debt and regain solid financial footing; one of these is bankruptcy.

The US Bankruptcy Code actually offers people and companies several paths which will help them rise up from a debt crisis. These paths are contained in various chapters of the Code and each chapter is specifically calculated to address the unique tight spot the debtor is suffering from.

Concerning businesses particularly, there are three bankruptcy options these can choose from:

  • Chapter 7, which is a liquidation bankruptcy that requires the business’ operation to stop and all its available assets, sold (by a court-appointed trustee), with the earnings from the sale distributed to creditors.
  • Chapter 13, which is reorganization or restructuring bankruptcy designed for sole proprietorship business structures (this bankruptcy chapter may be filed by individuals with an unsecured debt that is less than $383,175, or secured debt below $1,149,525. These are the present limits set by the federal government, which has complete jurisdiction over bankruptcy matters). In this chapter, the court will require the restructuring of the debt payment scheme, from three to five years – after which all debts should already have been fully paid.
  • Chapter 11, which is actually the most expensive, time-consuming, complex and riskiest bankruptcy chapter, but also the only option for sole proprietors, whose debts exceed the limit set in Chapter 13, as well as for small businesses structured as corporations, limited liability companies or partnerships which owe overwhelming debts but would not want to cease operations (giant corporations, like United Airlines, K-Mart and General Motors have also sought protection under this chapter).

Chapter 11 allows debtors to restructure their finances through a bankruptcy court-approved reorganization plan. This restructuring is specifically intended to keep the business alive and operational (but under the court’s close monitoring), pay creditors and regain profitability. Debtors, however, also have the option of selling a few or all of their assets to downsize their business, if they need to, or to be able to pay some of their debts.

Once Chapter 11 bankruptcy has been filed by a debtor (whether an individual or a business firm), an automatic stay of outstanding debts is provided by the law. The stay will prohibit creditors from making actions, such as collection attempts, foreclosures or repossession of the debtor’s property. The bankruptcy law, however, can prove to be too complex to many debtors; thus, seeking the assistance of an exceptionally competent bankruptcy lawyer will definitely be in their best interest.

One Comment

  1. 11-19-2014

    Criminal defense is serious business and I am grateful that someone is writing about it.

Leave a Comment

Your email address will not be published. Required fields are marked *