When the debts feel overwhelming, business owners may consider Chapter 11 bankruptcy and less drastic alternatives. In initial consultations with Aaron Hall, business owners often ask about a business bankruptcy that would allow them time to reorganize the business.
A business reorganization may be possible through Chapter 11 bankruptcy, but it often not the best option. Bankruptcy can be drastic and the business owner loses some control as the bankruptcy trustee takes over creditors start having input into business decisions. So we often explore other possibilities. There are a number of great options to consider including what lawyers often call a “workout.”
In a workout, Aaron Hall works with business owner clients to re-negotiate their debts. Usually, this results in either a (1) lower monthly payments or (2) a lump sum payment in exchange for a substantial reduction in the total amount owed. The options available to business owners very much depend on individual circumstances.
In the initial meeting, we often discuss:
- each creditor and the total amount still owed
- whether a relationship with that creditor is still vital to the business (e.g. a supplier of parts needed by the business)
- whether the creditor has a UCC Article 9 liens or other liens on property
- whether the company could be profitable if the debts were reduced or eliminated
- personal guarantees signed by the business owner (if yes, the business owners’s assets that could be available to creditors)
- valuable assets in the business that could be available to creditors
This legal analysis generally results in a few options. We then discuss the pros and cons of each. In most cases, business owners find an attractive option that will allow them to keep everything they own, keep and control the business, and substantially reduce their debts over time with new favorable terms.
Company Debts & Liabilities
It’s no surprise that many companies encounter serious debt issues. Companies take daily risks, markets are ever-changing, and sometimes unexpected problems arise.
Business owners may feel like the room is closing in around them when
- banks freeze the company’s line of credit,
- creditors intensify their collection efforts,
- lawsuits are commenced, or
- garnishments, levies, and foreclosures occur.
Turnaround experts and attorneys experienced in complex business problems provide an unemotional, objective perspective to identify a path through the chaos. A variety of legal tools are available to hold off creditors while the company gets back on track.
Business turnarounds turnaround experts help the business get back on its feet, maximize the value in the company, and make tough decisions to return health to the business. This often involves meeting with creditors to explain a turnaround strategy and negotiating a repayment plan with more favorable terms.
Basics of Business Owner Bankruptcy
The purpose of bankruptcy court is not to punish the debtor, but rather to release the debtor of liability.
Federal court has jurisdiction over bankruptcy cases, and debtors rarely appear in court. However, debtors are required, under rule 341, to attend a meeting between debtors and creditors in order to evaluate the debtor’s assets. This is often referred to as a 341 meeting.
For business owners (as individuals), there are three basic types of Bankruptcy as defined by the chapters of the Bankruptcy Code. Chapter 7 Bankruptcy deals with the liquidation of one’s assets in order to distribute payment to creditors. Chapter 11 concerns businesses that must reorganize in order to continue operating while paying off its creditors. Chapter 13 Bankruptcy is where an individual must adjust their debts in order to keep their assets while still paying off creditors over time. These chapters also provide many different methods for paying off your debts so you can move on with your life.
Companies filing bankruptcy generally use Chapter 11 to seek time to reorganize. However, often a business does not need to file for bankruptcy if the business owner declares bankruptcy.
Business Owner Bankruptcy Services
Here is a list of bankruptcy services and issues that can be resolved during the bankruptcy process:
- Alimony and child support
- Alternatives to bankruptcy
- Assets and exemption
- Automatic stay
- Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
- Completing the bankruptcy petition
- Compliance requirements for small businesses
- Credit card debt
- Creditors rights
- Debt discharge
- Debt restructuring
- Debtors rights
- E-discovery and computer forensics in bankruptcy cases
- Interest rate disputes
- Internal Revenue Service (IRS) tax debts
- Litigation in the bankruptcy court
- Mandatory credit counseling and debtor education
- Means test
- Mental health and addiction issues
- Predatory lending
- Predatory lending claims and bankruptcy
- Preparing and attending the 341 meeting of creditors
- Reaffirmation agreements
- Real estate bankruptcies
- Representing trade creditors
- Schedules A,B,C,D, & F
- Second lien lending
- Statement of affairs: discharge and dischargeability
- Taxes during bankruptcy
Bankruptcy Lawyer Credentials
An experienced bankruptcy attorney can provide clients with representation in the following areas:
- Personal bankruptcy
- Business owner bankruptcy
- Business bankruptcy
- Chapter 7 bankruptcy
- Chapter 11 bankruptcy
- Chapter 13 bankruptcy
- Pre-bankruptcy workouts with creditors (debt negotiation)
Chapter 11 of the Bankruptcy Code allows for reorganization of a business. In this case, the debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in a business or individuals can also seek relief under this chapter.
Chapter 7 of the Bankruptcy Code allows the debtor to obtain relief from their debt through a liquidation of some of their assets. A trustee is designated to gather and sell the debtor’s nonexempt assets in order to pay holders of the claims (the creditor).
Foreclosures are very intimidating and can have a significant effect on your life. For this reason, it is important to understand all of your options when facing a possible foreclosure in order to make sure that you reach the best outcome.
When going through a state court or bankruptcy proceeding, determining how to hold on to as much of your money as possible is important in order to stay afloat after. For this reason, it is important to understand the wage exemption so that a creditor will not garnish all or too much of your wages.
Annuity Exemption Under Minnesota Bankruptcy Law
Generally, an annuity is exempt from creditors (including the bankruptcy trustee) when filing for bankruptcy in Minnesota. The laws involving protection of funds in an annuity, or the steam of income from an annuity, varies from state to state.
Chapter 13 of the Bankruptcy Code provides for the adjustment of debts of an individual with regular income. It allows the debtor to keep property and pay debts over time, usually 3 to 5 years.
There are many ways to relieve the overwhelming debt you may be facing. It is important to understand your options in order to choose the route that is best for you.
In a judgment lien, through a court order, a creditor is given the right to obtain the debtor’s property if they fail to satisfy their contractual obligation to pay back their debt. An example is if you are sued in court and the plaintiff is granted damages but your insurance doesn’t fully cover the judgment, the plaintiff may be granted a judicial lien against your property to insure payment of the claim.