Sole Proprietors May Get Help With Personal Debt
While most small business owners will file Chapter 7 bankruptcy, sole proprietors have another option: Chapter 13. With this option, you may be able to list both personal and professional debts in your bankruptcy filing. For example, if you operate your business out of your home, you may be able to include missed rent payments.
Another way Chapter 13 bankruptcy helps sole proprietors is by keeping them in business. You may be able to stay operational as you work down your debt and get out of bankruptcy over time.
Using the home-based business again, it is much harder to liquidate assets as these sole proprietors would have to sell their houses and their cars to pay off debt, leaving them homeless and otherwise unable to work.
However, the combination of your personal and professional finances in Chapter 13 bankruptcy may impact your . Chapter 7 bankruptcy is recorded on your credit report for up to 10 years, while Chapter 13 is reported for up to 7 years.
In some cases, bankruptcy is unavoidable. If you decide that you need to go this route, make sure you know your options. Be informed about the bankruptcy process and the steps you can take to make it go smoother.
How Does Bankruptcy Work In Canada
If you looking to learn how bankruptcies work in Canada, youve found the right page.
Bankruptcy is a legal procedure in which you assign your property to a Licensed Insolvency Trustee as part of a process that relieves your debts. You are allowed to keep certain assets, depending on where you reside. Laws dealing with personal bankruptcy are meant to allow the honest but unfortunate debtor a chance to re-start their financial life.
Learn more about what is exempt from Bankruptcy here: Bankruptcy Exemptions.
Lets continue and cover more information on bankruptcy.
Making Changes To Your Bankruptcy Forms
Your bankruptcy forms are signed under penalty of perjury. When you file, you’re declaring that the information in your bankruptcy forms is true and correct to the best of your knowledge. If you accidently leave something out or make a mistake, you’ll need to make changes to your forms.
This is done by filing an amendment with the court. You might need to file an amendment because you forgot to list an asset or a , you need to add information that was originally missed, you change your mind about signing a reaffirmation agreement, or the trustee requests that forms be amended.
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Dealing With Your Vehicle
One of the forms you will file with the bankruptcy court is called the Statement of Intention. In this form, you tell the court what you plan to do with property that is securing a debt you owe, like real estate or a vehicle.
If you own your vehicle but are still paying on the loan, you have a few options on how to deal with it in Chapter 7 bankruptcy.
You can reaffirm the debt, keep your vehicle, and continue making payments. This means the debt will not be discharged and you will continue making monthly payments during and after bankruptcy. If you miss future payments the lender will have the right to repossess the vehicle and possibly try to collect on any deficiency between the balance you owe and the amount they get when selling the vehicle.
If you select this option in your Statement of Intention, your car lender will send you a reaffirmation agreement for you to complete and return. In some bankruptcy cases a reaffirmation hearing will be scheduled.
If you choose to surrender your vehicle, then it will be repossessed and the debt will be discharged in your bankruptcy. Filers with high car payments they can’t afford often choose to surrender their car to get out of the debt.
Impact Of Business Bankruptcy On Consumer Rights
Businesses fail on a daily basis, and our economy is set up, at least in principle, to enable new businesses to take their place. This is little comfort, however, to consumers who relied on a failed business for one reason or another. A business fails when it can no longer meet its obligations to its customers, creditors, and owners with its available income. This is also known as insolvency. The bankruptcy system gives insolvent businesses some options beyond outright failure. In a Chapter 7 bankruptcy, a business liquidates its assets in order to pay as much debt as possible. At the end of the bankruptcy case, the business usually ceases to exist. A Chapter 11 bankruptcy allows a business to reorganize in order to continue operations. The rights of the consumer in these processes depend on numerous circumstances.
What Does It Mean When A Company Files For Bankruptcy
4 minute read
After the World Health Organization declared COVID-19 a pandemic, many states imposed lockdowns, ordering non-essential businesses to close and limiting public interaction. Lockdowns severely curtailed shopping and travel, which caused many businesses â especially in the restaurant, hospitality, and leisure industries â to struggle economically.
Thousands of companies have declared bankruptcy, including big names such as Neiman Marcus, Hertz, J. Crew, and Brooks Brothers. But these familiar businesses are not necessarily gone for good. Bankruptcy can allow a company to reorganize its debt and try again.
Bankruptcy Can End With A Brand Relaunch Under New Management
Weve seen a number of retailers go bankrupt and relaunch under new management in the past few years. When American Apparel filed for bankruptcy in the fall of 2016, closing all of its stores, Gildan Activewear bought its intellectual property and relaunched it with some tweaks to its infamous marketing style. Nasty Gal was acquired out of bankruptcy by the British fast fashion brand Boohoo in February 2017, though its resuscitation came with complaints of poor customer service.
Gildan and Boohoo bought American Apparel and Nasty Gals names but none of their existing operations, supply chains, or debt. In essence, the brands looked much the same if less risqué, in the case of American Apparel but under the hood, they were totally different. At its clumsiest, this can create a sort of zombie effect, where things just seem off.
Its a tough road, though. Ramez Toubassy, the president of brands at Gordon Brothers, describes the valuation of a bankrupt brands intellectual property as an art and a science. Gordon Brothers is best known as a liquidator, but Toubassy led its of Wet Seals brand name after the mall retailer shut down all of its stores and filed for Chapter 11 bankruptcy protection earlier that year.
Its not uncommon for a brand to stumble and file for bankruptcy again what those in the business jokingly call a Chapter 22
I would say if youre not back up and running with e-commerce in six months, youd better have a good reason, Toubassy says.
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Filing For Chapter 7 Bankruptcy As A Sole Proprietor
A sole proprietor typically uses Chapter 7 after a business closure . The benefit to the filer can be substantial because Chapter 7 will discharge both qualifying business and personal debts, thereby genuinely giving the debtor a fresh start. Unlike a Chapter 11 or 13 filing, Chapter 7 doesn’t require creditor repayment. And it’s fast, taking three to four months to complete.
The downside is that all business and personal property become part of the bankruptcy estate. But you won’t lose everything. Bankruptcy law allows you to keep “exempt” assets in Chapter 7, such as some equity in a home and car, household goods, a retirement account, clothing, and a small amount of the equipment needed in your profession. The Chapter 7 bankruptcy trustee sells assets that aren’t protected by an exemption and distributes the proceeds to creditors.
The downside? A filer with a sizable estate could lose property in Chapter 7including the actual business if it’s a company with valuable assets and the trustee was able to find a willing buyer. So if you own an attractive ongoing operation that you can’t protect , you could lose it in Chapter 7.
Important Tip: Keeping a Service-Only Business in Chapter 7
Do I Have To File For Bankruptcy To Close My Business
No. If you can pay off your creditors or negotiate a deal with them, you dont need to file for bankruptcy protection. But you will want a lawyer to draft agreements.
Also: Dont forget about withholding taxes. When times are tight, many small-business owners who manage their own payroll dip into that pot of money they set aside at each pay period and use it for other expenses.
If you have unpaid withholding taxes, the business owner becomes personally liable, Ms. Clayson said.
The Things That Happen Immediately After Filing Bankruptcy
As soon as you file your Chapter 7 bankruptcy, you are given a case number and a bankruptcy trustee is assigned to your case. The bankruptcy trustee will oversee your bankruptcy filing, will review your bankruptcy forms, and may ask for additional documents to verify your information. The trustee will also conduct the meeting of creditors.
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you.
After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
How Long Does The Bankruptcy Process Take
When it comes down to it, these steps only illustrate an overview of how to file bankruptcy as a small business.
Overall, the entire bankruptcy process can take a long time and cost you a significant amount of moneyâwhich is why working with a business attorney is so important. A Chapter 7 bankruptcy usually winds up with a discharge within four to six months. A Chapter 13 bankruptcy takes a similar amount of time, although the actual period for paying back the debt is three to five years.
Business bankruptcy Chapter 11 takes the longest amount of time. Creditors are allowed to question the debtor in court, and both creditors and the court need to review and approve the reorganization plan. All told, this can take upward of a year.
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Must I File Both Personal Bankruptcy And Business Bankruptcy
Possibly, but not necessarily. It depends on whether you are closing the business or trying to restructure, and what liabilities you have.
If you are trying to restructure, the goal is for your lawyer to negotiate with your creditors and create a plan that lets you avoid a personal bankruptcy. But if the creditors dont like the deal, they could come after you for any debts you personally guaranteed. In that case, you might be forced to file for personal bankruptcy.
Does My Stock Or Bond Have Any Value
Usually, the stock of a Chapter 7 company is worthless and you have lost the money you invested.
If you hold a bond, you might only receive a fraction of its face value. It will depend on the amount of assets available for distribution and where your debt ranks in the priority list on the first page. If your bond is secured by collateral, your payment will depend in large part on the value of the collateral.
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If You Do Not Live In England Or Wales
You might be able to apply if you live anywhere else – talk to a debt adviser.
You must not break the bankruptcy restrictions in England or Wales. These might also apply outside England and Wales – check the laws of the country you live in.
How To File Bankruptcy As A Small Business
Thinking through the pros and cons of small business bankruptcy and deciding if it is the right option for you is something that you must give careful thought and consideration to.
Once you decide you want to proceed with bankruptcy, however, initiating the process is pretty simple. Sole proprietors can file on their own, but other businesses need an attorney to file. And even if youre a sole proprietor, we recommend hiring a business bankruptcy lawyer, because the rest of the process of filing bankruptcy for a small business can be lengthy.
How does business bankruptcy work?
The commencement of bankruptcy is actually simple, Jackson says, with a form that must be filed, along with payment of a filing fee. But, after the case is opened, the company must file very extensive disclosures with the court. After that, management must become accustomed to making its secrets public and seeking approval of every move.
This being said, here are the basic steps required to file business bankruptcy:
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How Can A Business Avoid Bankruptcy
There are several steps you can take to avoid bankruptcy. Your business should focus on paying off debt and cutting unnecessary expenses. Do not avoid your lenders or their calls. You must keep communication open, as you might extend the time you have to pay off debts or loans.
Since COVID-19 restricts what most businesses can do during the pandemic and quarantines, speak to an attorney before filing for a business bankruptcy chapter. We specialize in negotiation, which doesnt have to take place in court. That may allow you to restructure your business in the meantime.
No company starts with the knowledge that it will go bankrupt. The economic health of many countries is in danger because of the outbreak. Production has slowed and even halted in cities around the world. With travel restrictions and complete border lockdowns, the main priority is survival.
Thousands of people are being laid off, and companies cannot continue to pay salaries or debts without income. Essential suppliers are unable to deliver their products to their clients, and this is a growing problem with no easy solution. Our attorneys at The Pope Firm understand the frustration and stress that come with running a company, especially amid a global crisis.
Before you turn to bankruptcy, talk to a professional. You might have more options than you thought, and you may be able to avoid bankruptcy altogether.
If A Consumer Has A Gift Card From A Bankrupt Business
Regulations regarding gift cards and gift certificates vary widely among the states. Some businesses have decided to honor their gift cards after filing for bankruptcy, so it is worthwhile for consumers to ask. A gift card represents an obligation of the business, so a consumer can also submit a claim to the bankruptcy court.
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What Type Of Business Do You Own
The structure of the business will help you determine what you’ll need to protect to prevent losing the company.
- Sole proprietorships. If your business is not a partnership or incorporated, you’re operating a sole proprietorship. For example, if you’re a carpenter, you might operate as “Elaine Watson, doing business as Watson’s Cabinet Shop.” As a sole proprietor, you own the equipment you use in the business, the inventory, the accounts receivable, and all other assets. In Chapter 7 bankruptcy, there is no difference between your assets and debts, and those of the company.
- Corporations and limited liability companies. If your business is incorporated , the company is a separate entity from you. The company owns the equipment, inventory, and accounts receivable. Instead of owning all the assets personally, you own stock or shares.
- Partnerships. Partnerships are somewhat tricky, because like a sole proprietorship, partners are personally liable for the debts of the business, and therefore, the debts will be included in your personal bankruptcy. Because bankruptcy could absolve you of your responsibility to pay much of the business debt, many partnership agreements have clauses that dissolve the partnership if one of the partners files for bankruptcy. Litigation arising from a partner filing for bankruptcy is relatively common, so be sure to consult with a bankruptcy attorney.
Bankruptcy In The United States
Like the economy, bankruptcy filings in the U.S. rise and fall. In fact, they are like dance partners where one goes, the other usually follows.
Bankruptcy peaked with just more than two million filings in 2005. That is the same year the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. That law was meant to stem the tide of consumers and businesses too eager to simply walk away from their debts.
The number of filings dropped 70% in 2006, but then the Great Recession brought the economy to its knees and bankruptcy filings spiked to 1.6 million in 2010. They retreated again as the economy improved, but the COVID-19 pandemic easily could reverse the trend in 2021. It seems inevitable that many individuals and small businesses will declare bankruptcy.
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What Happens When A Business Files For Bankruptcy
According to data collected by the American Bankruptcy Institute , nearly 23,000 companies filed for bankruptcy protection in 2019 alone. If your company is facing significant financial hardship, filing for bankruptcy may be the best available option. This raises an important question: What happens to a company that files for bankruptcy?
The answer depends largely on whether the business is filing for a liquidation bankruptcy or a reorganization bankruptcy . Below, our New York bankruptcy lawyers offer a brief explanation of what happens when a business files for each type of bankruptcy protection.
Liquidation: A Company that Files for Chapter 7 are Going Out of Business
Chapter 7 bankruptcy liquidates the company and then uses the remaining assets to pay off as many of the creditors as possible. When corporations, LLCs, and other types of businesses file for Chapter 7 bankruptcy protection, they are on the path to ending operations and closing the business. Indeed, the company will generally be turned over to a bankruptcy trustee who will be responsible for ensuring an orderly liquidation.
Reorganization: A Company that Files for Chapter 11 Seek to Restructure