Small Business Bankruptcy

More and more we are meeting with Debtors who own a small business. The business is not making enough money to pay its debts as they come due, or is in a situation where it is awaiting revenue that will allow it to pay its debts.

Just like a consumer, the business is getting harassing phone calls from creditors. This makes it even more difficult for the business to operate. They are receiving the phone calls, receiving red envelopes with angry typeset that the staff see, and all in all the picture looks bleak.

A Business has two principal paths to resolution through the Bankruptcy Code. The First is Chapter 7. A Chapter 7 business filing will involve a complete shutdown of the business. To the extent that the business has any assets, they will be sold to satisfy the debts owed to creditors. The company is wound down and the principals can move on with their lives.

The Second option for a small business is a Chapter 11 filing. This is similar to a consumer Chapter 13 filing, but has special rules for corporations. The Company must set up a Debtor in Possession Bank Account and make monthly and quarterly operating reports to the office of the US Trustee. The Creditors in a Chapter 11 filing will have a vote in the approval of any plan of reorganization.

Whether you are thinking of putting your business into either chapter 7 or 11 bankruptcy, it is vital to speak to a knowledgeable attorney. As well, do not wait until the company is completely out of money. There may be ways to save a business without having to destroy it.