Ganje Law Office

Posts Tagged ‘bankruptcy faq’

Do money woes mean your company has to file for bankruptcy? Not necessarily: corporate bankruptcy and a business workout are generally both options that can help your business resolve your insolvency issues.

Debating a bankruptcy filing can be one of the hardest decisions a business owner will ever make. With mounting debts, it can be hard to see how your company will ever overcome its financial woes. But there are almost always at least two options when your company is bordering on insolvency: corporate bankruptcy and a business workout.

Business Workouts

This bankruptcy prevention strategy can help you settle with creditors outside of the courtroom. These non-bankruptcy solutions involve working with your creditors to resolve your debts and enable the business to continue in operation. Including options to renegotiate and reorganize debt, business workouts can help your business regain liquidity without a costly, drawn-out bankruptcy filing.

If you’re wondering why creditors would be willing to renegotiate debt, the answer is simple: money. Bankruptcy proceedings ensure that many of your creditors get some repayment of the debt owed, but most creditors generally take a major hit. With a workout, they’ll likely receive payment on a greater portion of your debt. So instead of being unenthusiastic about renegotiating your company’s debts, your creditors are likely to be eager to participate in debt restructuring. It’s their best bet for having their debts fully satisfied!

Corporate Bankruptcy

However, if your creditors refuse to compromise and your debts have become completely unmanageable, corporate bankruptcy may be your only option. Depending on the organization and structure of your business, there are several options available for business bankruptcy. Filing a Chapter 7 bankruptcy results in the liquidation of your company, selling off assets to satisfy your debts. Filing a Chapter 11 bankruptcy involves restructuring your business to regain profitability and settle with creditors. Some assets may be sold off during this process, but the company will not be liquidated. To determine the most appropriate type of bankruptcy filing for your business and your particular financial situation, you’ll want to consult an experienced bankruptcy attorney. Keep in mind that for small business owners, a business bankruptcy will affect your personal finances, so it’s best to avoid it if at all possible.

With debts piling up, it can be hard to know if or when to file for bankruptcy protection—that’s why you need to call Ganje Law now. We can offer you expert advice on what’s right for your business, so don’t wait! Contact us today.

If you’re considering bankruptcy for your business, you’re sure to have tons of questions. That’s why we’ve compiled answers to the most frequently asked queries about business bankruptcy to help you make informed decisions!

The world of corporate bankruptcy law can be complex and intimidating. Don’t let confusion get in the way of making the best decisions for your company: read on to get answers to the most commonly asked corporate bankruptcy questions.

Q. What is bankruptcy?

A. When a business has financial liabilities that exceed their assets or is unable to meet financial obligations, that company is insolvent—unable to pay their creditors, the company must come to an agreement with their creditors regarding payment or file for bankruptcy protection. This judicial solution gives the courts the power to settle the company’s debts.

Bankruptcy proceedings can be initiated by the debtor or by the creditor (called an involuntary bankruptcy). Filing a bankruptcy petition affects all of your creditors including:

• Secured creditors (those with a lien on your property)
• Unsecured creditors (vendors, credit card companies and others without a security interest in your property
• Judgment creditors (creditors who have sued and obtained a judgment against the debtor prior to the bankruptcy filing)
• Creditors with super priority claims (those with priority over other creditors because of special rules within the bankruptcy)
• Creditors with administrative claims (creditors such as accountants or lawyers with priority because of their assistance in the bankruptcy filing)

Q. What does filing for bankruptcy mean for my business?

A. Filing a bankruptcy petition simply starts a legal proceeding, with no guarantees regarding the outcome. That is to say, the debtor will present evidence of its insolvency, but there is no guarantee that the court will declare them bankrupt. This statutory process gives creditors and other parties the opportunity to challenge the debtor’s allegations and object to the relief being sought by the debtor.

Filing for bankruptcy does immediately put into effect an “automatic stay,” an injunction that stops creditors from trying to collect their debts until the bankruptcy court rules. This stay is issued against all creditors upon filing a bankruptcy petition. The automatic stay is designed to give debtors temporary relief from their financial obligations, giving them the breathing room to figure out how to deal with their debts.

If the courts declare your company bankrupt, then a settlement will be worked out with your creditors to satisfy all or part of your debts. Depending on the bankruptcy chapter you filed under, different rules apply.

Q. What is a business workout?

A. A business workout is a non-judicial resolution of your company’s financial obligations. Business workouts are settlements between a company and its creditors that satisfy the businesses’ debts, enabling it to continue operation. Also known as bankruptcy prevention, these arrangements are made outside of the court system.

While it may be surprising that creditors are willing to participate in business workouts, they’re more likely to receive greater compensation for their debts if your company does not file for bankruptcy. Using an alternative to corporate bankruptcy proceedings benefits creditors as well as the debtor, because some, or even most, of the debt will not be repaid under a bankruptcy proceeding. Secured debt, unsecured debt, and tax debts can all be resolved as a part of a workout.

Bankruptcy is a term we hear all the time but don’t necessarily understand. We’ve put together a brief overview of business bankruptcy in the US to help you understand the meaning and consequences of corporate bankruptcy in today’s down market.

With today’s tough economic situation, we’ve been hearing more and more about business bankruptcies in the news. But what exactly is bankruptcy and what does it mean when a business says it’s filing for bankruptcy.

Bankruptcy is a legal filing that enables struggling businesses to resolve issues of insolvency. Generally caused by a lack of cash flow, filing a bankruptcy can be initiated by the business or by its creditors (called an involuntary bankruptcy). Once a bankruptcy case has been filed, the judicial system works to create a fair settlement between the business debtor and its creditors.

Most business bankruptcies fall into one of four categories, or types of filing:

• Chapter 7: Bankruptcy Liquidation—This type of bankruptcy dissolves the company, selling off its assets to pay all or part of its debts. Chapter 7 bankruptcy protection is generally utilized by companies with irresolvable cash flow or financial problems and by small, sole proprietorship businesses.
• Chapter 11: Bankruptcy Reorganization—This type of bankruptcy takes the corporation through a period of structural and financial reorganization with the goal of regaining profitability. Operations are typically streamlined to reduce costs, some assets can be sold off to satisfy creditors, and other changes are all options with this type of corporate bankruptcy. Chapter 11 bankruptcy filings are generally used by large and medium-sized corporations.
• Chapter 12 Bankruptcy: Bankruptcy for Family Farmers and Fishers—this specialized form of business bankruptcy is designed for family farming and fishing operations, and is used with less frequency than Chapter 7 and Chapter 11 bankruptcy.
• Chapter 13: Wage-Earner Bankruptcy—Frequently used in personal bankruptcy filings, this type of bankruptcy can also be used by sol proprietorship companies. Enabling them to repay debts over a set time period (usually three to five years), Chapter 13 bankruptcy allows the business owner to retain their assets.

If you’re considering filing for corporate bankruptcy, give us a call before making any final decisions. We can provide you with expert advice regarding the future of your company.

BANKRUPTCY LAW IS A FEDERAL LAW. THIS SHEET GIVES YOU SOME GENERAL INFORMATION ABOUT WHAT HAPPENS IN A BANKRUPTCY CASE. THE INFORMATION HERE IS NOT COMPLETE. YOU MAY NEED LEGAL ADVICE.

When You File Bankruptcy

You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):

• Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.

• Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.

• Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.

• Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.

If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.

Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.
What Is a Bankruptcy Discharge and How Does It Operate?

One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–

• most taxes;
• child support;
• alimony;
• most student loans;
• court fines and criminal restitution; and
• personal injury caused by driving drunk or under the influence of drugs.

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.

It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.

You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.

Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Is a Reaffirmation Agreement?

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–

• must be voluntary;
• must not place too heavy a burden on you or your family;
• must be in your best interest; and
• can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.

If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.

If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

IF YOU WANT MORE INFORMATION OR HAVE ANY QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT YOU, YOU MAY NEED LEGAL ADVICE. THE TRUSTEE IN YOUR CASE IS NOT RESPONSIBLE FOR GIVING YOU LEGAL ADVICE.