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Corporate Bankruptcy Chapter 13

Small Business Bankruptcy Attorneys In Cary Nc

Chapter 13 Bankruptcy Explained | Step by Step

If youre a small business owner, youve likely seen significant ups and downs when it comes to your companys finances. If you find yourself struggling to pay your bills, pay your employees and vendors, and keep your business afloat, filing for bankruptcy might be the best way to modify, reduce or eliminate debt and get your make your business and/or personal balance sheet manageable.

Depending on the specifics of your situation, you might want to consider either Chapter 13 or small business Chapter 11 bankruptcy. To know which option is right for you, call the experienced bankruptcy lawyers at Sasser Law Firm. Weve been helping small business owners just like you for over 20 years in North Carolina.

For many business owners, bankruptcy is a tool that can help when your financial obligations become too much to handle. Our bankruptcy attorneys can explain the process and all the options that are available to you. Whether you decide to file bankruptcy or not, we will be happy to discuss your options.

If you hire us, you will be hiring a firm of 3 board-certified bankruptcy lawyers. All of our bankruptcy lawyers have passed an exam, are subjected to enhanced continuing education requirements, and have been reviewed by peers.

Take the first step toward financial freedom for your business and/or personal financial situation by calling us or by reaching out to us online.

Bankruptcy Options If I Own A Corporation Or Llc

If you own a corporation or LLC, as opposed to a sole proprietorship and are considering filing for bankruptcy, you likely have two debt problems: business debt and personal debt .

A corporation or LLC has two options for filing bankruptcy: Chapter 7 liquidation, or Chapter 11 reorganization. In a business Chapter 7 bankruptcy, the business is closed, all assets are liquidated by the bankruptcy trustee, and the proceeds from the business assets are paid out to the businesss creditors. The business cannot exempt any property from being liquidated, and the business does not receive a discharge of its debts at the end it simply ceases to exist. The businesss unpaid debts remain, but there is no business left to pay them. If there are any personal guarantees to any business lender for remaining business debt, then the business lender can pursue the guarantor for the remaining debt. If there are no personal guarantees, then the debt simply goes away.

A Chapter 7 business bankruptcy does allow for the orderly liquidation of business assets, and is overseen by the bankruptcy trustee and the bankruptcy court. This can be very beneficial if the business owner wants to make clear that the business has closed and that all closing transactions were done by an independent third party. When a business has aggressive creditors, a Chapter 7 business bankruptcy can protect the owners by making clear that the liquidation will be handled by an independent third party.

Is Chapter 11 Or Chapter 13 Better For Your Credit

When youre considering your options and dont know whether small business bankruptcy Chapter 11 or Chapter 13 is the better choice for you, consider the effect it will have on your credit. Whichever option you choose, it may harm your credit score in the short run if your credit report is free from blemishes. If your credit report has already been damaged then the bankruptcy may not have much of an impact.

Even when you file for bankruptcy, its essential to know that all your debts may not be wiped out completely. Furthermore, youre required to stick to the repayment plan, and if you default on any payments, you can face consequences that can be detrimental to your personal and business finances.

Chapter 13 can work for both individuals and small business owners interested in coming up with a manageable and affordable payment plan.

When youre deciding which option to file, its best to look at the benefits and consequences of each.

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You Can Keep Your House In Bankruptcy But May Have To Sell Other Assets

If you file for bankruptcy, you can usually keep the house and other property you own. In some cases, you may have to sell some of your assets in order to keep them. If you dont have enough money to pay your mortgage, for example, you might have to sell other assets to make the payment, but you wont lose your home. Before filing for bankruptcy, you should understand the law. Learn more about your current bankruptcy situation by speaking with an attorney.

In General Almost Any Individual Or Business Can File For Chapter 11 Bankruptcy This Includes:

Chapter 13 Bankruptcy

There is no specified debt-limit, nor is there a set required income. However, this form of bankruptcy can be complex and expensive. When you file for bankruptcy Chapter 11, your business will be allowed to stay open while it reorganizes its finances and obligations. Businesses are often allowed to establish a reorganization plan and continue operations.

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Eligibility For Chapter 11 Or Chapter 13 Bankruptcy

Virtually anyone can file for Chapter 11 bankruptcy, but all small businesses are ineligible to file for Chapter 13 except for sole proprietors. Here’s how it works.

Chapter 13 eligibility. Chapter 13 is available to individuals and sole proprietors with regular income. Small companies formed as corporations, partnerships, or other entities aren’t eligible for Chapter 13 relief. However, that’s not to say that someone who owns a business can’t file an individual Chapter 13, and sometimes doing so helps.

Most filers’ plans direct income toward the debts filers want to be paid most, like mortgages, car loans, equipment payments, and other secured obligations. Filers pay significantly less toward credit card debt, medical bills, and unsecured personal loans. Also, business debts you’re personally liable for will be included in your plan.

However, not everyone qualifies for Chapter 13. You’ll need sufficient income to support a Chapter 13 plan and will be subject to debt limitations that change periodically and other Chapter 13 eligibility requirements.

As of April 1, 2022, a filer’s debt can’t exceed $1,395,875 in secured debt and $465,275 in unsecured debt. These figures apply to cases filed between April 1, 2022, and March 31, 2025.

Chapter 11 Subchapter V is limited to “small business filers” with a total debt burden of $3,024,725 or less .

Learn about other options for struggling businesses in Small Business Bankruptcy.

Determine How Much Home You Can Afford

Budgeting matters when buying a foreclosed home. Yes, you might be able to nab your new home at a lower price tag. But foreclosed homes arent free. And despite what you might have heard, you cant buy a foreclosed property for $1 either.

Youll need to craft a household budget listing your monthly income and expenses to determine how much of a mortgage payment you can afford each month.

If you dont do this, you might purchase a home you cant afford even if youre looking for a foreclosure. By purchasing a home thats out of your budget, youll struggle to make your own mortgage payment each month.

As with any home purchase, its important to predetermine your debt-to-income ratio. As the name suggests, this ratio analyzes how much of your gross monthly income your monthly expenses will consume.

Most lenders want your monthly debts to take up no more than 43% of your gross monthly income. If your debt-to-income ratio is higher than that, youll struggle to qualify for a home loan.

Be especially careful when buying a foreclosed home. You might be tempted to buy a foreclosure with a price tag thats at the very top of your budget.

The problem with this is that the foreclosed home might require expensive repairs. If youve purchased a home at the top of your budget, you might not have enough money to afford those needed repairs.

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What Happens When A Business Files For Bankruptcy

It depends. Businesses are limited to filing either Chapter 7 or 11, but sometimes it’s possible for a business owner, rather than the business itself, to use Chapter 13 effectively. Before diving into the details, it’s a good idea to familiarize yourself with these basics.

  • Businesses in Chapter 7 bankruptcy.Chapter 7 is a “liquidation” bankruptcy. The trustee appointed to the case sells property and disperses the proceeds to creditors. Almost all businesses that file for Chapter 7 bankruptcy are closed when they file or shut down during the process. Chapter 7 is the quickest and most cost-effective bankruptcy type.
  • Businesses in Chapter 11 bankruptcy.Chapter 11 is a “reorganization” bankruptcy. You and your creditors create a plan to pay bills in a manner that allows the company to remain operational. Chapter 11 is lengthy and costly. Chapter 11, Subchapter V is a cheaper, more efficient version available to small businesses.
  • Owners in Chapter 13 bankruptcy.Chapter 13 is also a “reorganization” bankruptcy, but other than sole proprietors, businesses can’t file for Chapter 13 because it’s intended for individuals. Chapter 13 can help an owner reduce personal debt, such as credit card balances, which can help a business stay open.

To illustrate this, we’ve outlined important points in the “When a Business Files for Bankruptcy” chart below. Consider referencing the chart while reading about your bankruptcy options.

Veterans Administration Loan Program

Chapter 13 Bankruptcy: An Overview

The federal Veterans Administration has a mortgage guarantee program that is open to current service members, veterans, and surviving spouses. According to Military.com, the loans can be used to buy repossessed properties, although a bit of advance preparation is needed.

Benefits include zero down-payment loans, reduced closing costs, and a waiver of the mortgage insurance requirement.

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Who Should File Chapter 13 Bankruptcy

Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But theres hope even in bankruptcy, and Chapter 13 of the federal bankruptcy code offers the closest thing to a soft landing.

Chapter 13 is sometimes called the Wage Earners Bankruptcy, and for good reason. Chapter 13 is bankruptcy for people who are making money but have fallen desperately behind trying to keep up with payments for things bought on credit.

Your debts are reorganized, and a program is set up to pay them. You should be able to keep your home after Chapter 13 bankruptcy as long as meet the requirements of the repayment plan established by the bankruptcy court.

Under Chapter 13, you have 3-5 years to resolve debts while applying all your disposable income to debt reduction. That means no-frills living, but the Chapter 13 option lets you eliminate unsecured debt like credit card payments, while you catch up on your mortgage payments.

Youll also be supervised by a court-appointed trustee who will collect and distribute your payments.

The Pros And Cons Of Bankruptcy

A bankruptcy filing is a legal process that allows you to obtain full or partial payment of your debts. Although there are numerous advantages to bankruptcy, there are also numerous disadvantages. Bankruptcy can cause your credit score to remain negative for 7 to 10 years, and it can affect your future finances. Your bankruptcy discharge is free of all debt, but any debt that is not dischargeable may haunt you for years. You may be garnished from your wages or harassed by credit card companies and payday lenders who do not have the resources to collect the payments that you cannot afford bankruptcy may be the best option for you. If most of your debts are not dischargeable, you may not be able to recoup your money from filing bankruptcy. When you declare bankruptcy, you lose the right to keep the majority of your assets, including your house, car, and other belongings. People, on the other hand, can keep their household furniture, retirement accounts, and some equity in their houses and cars during bankruptcy.

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When Creditors Force Your Business Into Bankruptcy

In most cases, bankruptcy is entered into voluntarily. But that isn’t always the case. In some situations, creditors will force a debtor into bankruptcy involuntarily.

Involuntary cases are highly unusual. Creditors use the process primarily to force a company into a business bankruptcy. It’s rarely used against an individual in a consumer bankruptcy because meeting the prerequisites necessary to file an involuntary bankruptcy isn’t easy.

Most cases require several creditors to get together and agree to file against a debtor. If accomplished, the court appoints a bankruptcy trustee to take over all aspects of the business, sell the assets, and distribute the proceeds to the creditors.

Although this seems like it would be helpful, many creditors would prefer to initiate their own collection actions. By doing so, they retain the ability to grasp a larger share of the business assets. Once in bankruptcy, a creditor must share proceeds with other creditors, taking a smaller portion or, in some cases, getting nothing at all.

However, it’s essential to understand that a creditor might not be able to keep funds collected shortly before bankruptcy, especially if it’s considered a preference claim favoring one bankruptcy creditor over another. But, many creditors are willing to take the risk and return the funds if necessary.

Overview Of Bankruptcy Chapters

Life after Chapter 13 Bankruptcy: Can You Buy a House?

The Bankruptcy Code appears in title 11 of the United States Code, beginning at 11 U.S.C. 101. Its principal chapters are briefly outlined below:

Chapter 7

Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. Those assets of a debtor that are not exempt from creditors are collected and liquidated , and the proceeds are distributed to creditors. A consumer debtor receives a complete discharge from debt under Chapter 7, except for certain debts that are prohibited from discharge by the Bankruptcy Code.

Chapter 11

Chapter 11 bankruptcy provides a procedure by which an individual or a business can reorganize its debts while continuing to operate. The vast majority of Chapter 11 cases are filed by businesses. The debtor, often with participation from creditors, creates a plan of reorganization under which to repay part or all of its debts.

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What People Who Own Businesses Can Expect In Chapter 13 Bankruptcy

Chapter 13 takes far longer to complete than Chapter 7 because you’ll make a monthly payment for three to five years. But there’s a positive side to Chapter 13’s payment plan. Most people pay more toward obligations they value and less toward credit card balances, medical bills, and personal loans.

For instance, Chapter 13 filers can:

  • catch up on a house, car, or collateralized credit account and save the property
  • pay off bills over time, such as tax debt and domestic support obligations, and
  • reduce some secured loans to the property’s value using “lien stripping” or a “cramdown.

However, because of these benefits, Chapter 13 payment plans can be expensive, and not everyone has enough income to pay the required amount. You must pay for some debts in full in Chapter 13.

And, the amount you pay your unsecured creditorsâthose with bills other than your mortgage, car payment, and other collateralized debtâmust equal or exceed the value of “nonexempt assets” or property you can’t protect with bankruptcy exemptions through your repayment plan.

But this chapter doesn’t work the same for sole proprietors and other business owners. You’ll find a brief overview of the main differences below.

Before Filing A Bankruptcy Petition

Bankruptcy can resolve your debt problems, but you should consider it a last-gasp option. Before deciding if you should file for bankruptcy, look for alternatives or advice that might be a less damaging choice. Some possibilities include:

Nonprofit credit counseling agencies provide free budgeting advice and suggestions for other debt-relief options. Churches, charitable organizations and government agencies also provide counseling without charge, or they can refer you somewhere than can help. The goal is to review your finances and suggest solutions for your debt.

Debt Management This is one of a few debt-relief programs that might make it possible to avoid filing bankruptcy. The primary goal of debt management is to reduce the interest rate on credit card debt and lower the monthly payments you make to an affordable rate. Debt management plans take 3-5 years to complete.

Debt Consolidation If you owe balances on multiple credit cards, a debt consolidation loan will allow you to pay off all the credit card debt and be left with a lower-cost loan repayment. Your credit score will influence whether the interest rate you pay offers substantial savings or not.

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How Business Owners Benefit From Personally Filing Chapter 7

Many business owners choose to file a personal bankruptcy after a business closure. It’s often more effective because it accomplishes most business owners’ fundamental goals of erasing their responsibility to pay personal guarantees and other business debts.

For more information, see Are You Personally Liable for Business Debts?

Special Provisions For Small Business Debtors In Chapter 11 Subchapter V Cases

How Chapter 13 Bankruptcy Works

For the most part, small businesses and major corporations must follow the same rules and requirements when reorganizing under Chapter 11. However, special provisions help small business debtors move through the Chapter 11 process more quickly while reducing legal fees and other restructuring expenses.

A company qualifies as a small business debtor by meeting the small business case requirements under Chapter 11, Subchapter V:

  • is engaged in business or other commercial activities, and
  • owes no more than $3,024,725 as of April 1, 2022, in total claims, excluding obligations owed to insiders such as family members of the business owners .

Benefits and special procedures applying to small business Chapter 11 matters include:

No Creditors Committee. Ordinarily, in Chapter 11 cases, a committee is appointed to represent the interests of unsecured creditors. A creditors committee can retain attorneys and other professionals at the debtors expense, significantly increasing the cost of Chapter 11 reorganization. Small business cases dont involve creditors committees.

Additional Filing and Reporting Duties. Small businesses are subject to some reporting and filing requirements not imposed on other Chapter 11 debtors. A small business debtor, for example, must attach its most recently prepared balance sheet, statement of operations, cash flow statement, and federal tax return to its bankruptcy petition when it files for Chapter 11 relief.

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