Businesses, like individuals, can face insurmountable debts and declare bankruptcy. Bankruptcy is not always the best solution for financial troubles. While it can provide a new beginning, it can also harm a business’ credit rating. Chapter 7 bankruptcy requires the business to be liquidated with the proceeds from the asset sales used to pay secured creditors and the balance of the proceeds being used to pay unsecured creditors. It is wise to work with an experienced bankruptcy attorney who can determine what your best options may be.
What are your options?
Speaking with one of our attorneys will answer any questions you may have regarding business bankruptcy and your financial future. Businesses can choose from a number of options.
What is bankruptcy?
The best planning and hard work cannot always prevent the accumulation of debts that are impossible to repay. Sometimes, the best solution is bankruptcy: it is an extremely powerful tool and can help to resolve problems that seem impossible. It is important to get advice from an attorney with experience in bankruptcy law. A bankruptcy attorney can help a debtor to move on and get the most benefits from this process, and help a creditor to recover as much of their debt as possible.
Bankruptcy law is mostly federal, and is therefore fairly uniform. Bankruptcy proceedings do differ from state to state: the amount and type of property exempt from creditor claims, for example, depends on your jurisdiction.
Bankruptcy is an option for businesses as well as individuals.
Commercial bankruptcies provide options to businesses including liquidation of assets and reorganization, which allows businesses to continue operations while making payments to creditors.
Consumer bankruptcies allow individuals to discharge some debts, while impacting their credit rating. There are two options, as in commercial bankruptcies: the debtor can liquidate assets, or create a payment plan, which allows the debtor to keep more assets.
There are two paths through the bankruptcy process. One involves liquidation, covered by Chapter 7 of the federal Bankruptcy Code. The other involves rehabilitation or reorganization, which is covered by Chapters 11 and 13.
Chapter 7 bankruptcies require debtors to meet a financial means test. A third party called a trustee collects all of the debtor’s property (except for exempt property that is protected from creditor claims) and sells it unless the debts secured by the property exceed its value in which case the property is abandoned by the trustee. The proceeds from this sale are then distributed among the creditors. Not all creditors are guaranteed full or any payment. When the liquidation is complete, the bankruptcy court discharge all remaining dischargeable debts. A corporation going through Chapter 7 bankruptcy will cease to exist and does not receive a discharge.
Chapter 11 or 13 bankruptcies are often preferred by courts, and they provide a better chance of recovery for creditors. Chapter 11 usually applies to large companies or individuals with large or complex debts. Chapter 13 is generally used for individuals with not greater than $394,725 of unsecured debt and $1,184,200 of secured debt. Reorganization allows debtors to develop a payment plan, which must be approved by the court. The court can still order a liquidation if the debtor fails to meet the payment schedule. These bankruptcies require the debtor to undergo a budget and credit counseling training.
Chapter 11 bankruptcies allow businesses to continue operating through the bankruptcy process. An automatic stay is issued. Courts can choose to appoint a trustee, but often choose not to do so. The debtor is allowed time to create a reorganization plan, which details the payment plan and how the business will operate. Creditors are allowed to vote on the plan, which the court can approve with or without the consent of the creditors. If the plan is not approved, the business can be liquidated. Businesses can choose to switch between bankruptcy proceedings, but they cannot switch back.
Chapter 12 bankruptcies resemble Chapter 13 bankruptcies, but are tailored for farming operations and provide a unique opportunity for the family farmer to obtain the discharge of tax debt incurred by the liquidation of farm assets used in the farming operation in the tax years before filing the chapter 12. Selection of a knowledgeable attorney with experience in Chapter 12 is a significant factor in a successful Chapter 12 bankruptcy. The bankruptcy attorneys at Day Rettig Martin, P.C. are well qualified to assist family farmers with Chapter 12 bankruptcies.
Chapter 9 bankruptcies resemble Chapter 13 bankruptcies, but are tailored for municipal governments.
Bankruptcies can be either voluntary or involuntary. Once a debtor applies for bankruptcy relief, all creditors must immediately cease attempts to collect the debt. However, creditors can file for relief and request a Chapter 7 or Chapter 11 bankruptcy. To move forward, these involuntary bankruptcies must meet certain requirements. The debtor must have a minimum number of petitioning creditors holding non-contingent, undisputed debt exceeding $15,775. The debtor can respond to an involuntary petition, which requires the court to determine whether the creditors are entitled to press forward with the involuntary bankruptcy. If the court rules in the debtor’s favor and dismisses the involuntary bankruptcy, creditors can be ordered to pay the debtor’s attorney fees and damages. Involuntary bankruptcies cannot be filed against farmers.
If you are involved in an involuntary bankruptcy as a creditor or debtor, or if you are considering a voluntary bankruptcy, an attorney who specializes in bankruptcy law can be an invaluable asset. An experienced lawyer can help to maximize your return and help you to move forward and plan your financial future.
Debtors and creditors can both benefit from the counsel of an experienced bankruptcy law attorney. The bankruptcy process can be expensive and complicated, and has long-term ramifications. An attorney can help to get you through this process, or advise you on alternatives like counseling or developing a payment plan.
If you would like to schedule an initial consultation, do not hesitate to contact one of our Cedar Rapids attorneys at Day Rettig Martin, P. C. Give us a call at (319) 365-0437 or email us at [email protected].
Coping With Bankruptcy
Whether your bankruptcy was voluntary or not, the emotional impact of this event can be tremendous. The attorneys at Day Rettig Martin, P.C. understand how you may be feeling, and we want to help you. One of the most important steps in building and maintaining financial success is understanding and working to resolve the emotional issues surrounding bankruptcy.
Our society places a high value on image, and equates financial success with success in life. Filing for bankruptcy can raise many negative emotions and harm your sense of identity and self-worth. Money can affect ourselves and our relationships, and bankruptcy can challenge the way we view ourselves and deal with others.
In order to cope with these emotions and work constructively, work towards the following goals:
- Allow your improved finances to increase your sense of control.
- Learn from your experiences, and take steps to secure your financial future.
- Do not value yourself solely in material terms.
- Build a financial safety net to prevent an uncertain future from derailing your progress.
- Recognize any feelings of loss, anger, shame, or depression. You must acknowledge these feelings in order to move forward.
- Do not punish yourself. Remember that your bankruptcy, when handled properly, is a positive step towards improving your situation.
Many people feel utterly insecure during times of loss. They lose trust in themselves and others. It may seem natural to hide these emotions, but consciously recognizing your emotions can help to prevent fear and regain control. We are here to help rebuild that trust.
Contact an attorney you can trust
The attorneys at Day Rettig Martin, P.C. are here to help you get through this complex time. These situations are never easy, and we understand that. Allow our attorneys to help you set yourself and your company up for financial success in the future. Contact us today.