How to Keep Business Assets During a Bankruptcy
Identify which reorganization is available to you., Hire a lawyer., File for bankruptcy., Continue to run your business., Submit your reorganization plan., Have creditors approve the plan in Chapter 11., Attend a confirmation hearing., Make payments...
Step-by-Step Guide
-
Step 1: Identify which reorganization is available to you.
There are two bankruptcy chapters that will let you reorganize your business debts:
Chapter 11 and Chapter
13.
In a reorganization, you come up with a plan to pay your creditors.
Not every business can choose either Chapter 11 or Chapter
13.
Chapter 11 is available to all business entities.
However, it is a complicated bankruptcy and generally used by large, publicly-traded companies.
A simplified version is available for small businesses that have less than $2.19 million in total debts.Chapter 13 is available only for sole proprietorships.
Other business entities that want to reorganize debts must choose Chapter
11.Chapter 13, however, has certain debt limits.
You cannot have more than $394,725 in unsecured debt or more than $1,184,200 in secured debt. -
Step 2: Hire a lawyer.
You will need a lawyer to file for you.
You can find a qualified bankruptcy lawyer by contacting your local or state bar association and asking for a referral.Call up the attorney and schedule a consultation.
Discuss your options with the lawyer.
For example, if you are sole proprietor, you have multiple options—Chapter 11, 13, or even Chapter
7.
Ask the lawyer to walk you through the process.
Also ask how much it will cost to hire the lawyer.
You can include lawyer’s fees in your repayment plan for either Chapter 11 or Chapter
13. , You file for bankruptcy by submitting a bankruptcy petition and information about your debts and assets.
Generally, you will file in the district where your principal place of business is located.Your lawyer can file this paperwork for you.
Provide your lawyer with all necessary information.
A Chapter 13 is really a personal bankruptcy, so you will want to include any personal debts you want to reorganize, such as personal credit cards or medical debt.
Your lawyer will need this information to include with the petition. , Because you are reorganizing debts, you continue to run your business.
However, you might need the court’s approval for certain business decisions.
In a Chapter 11, for example, you need a judge to approve the following:sale of assets (other than inventory) new leases expansion of your business operations new or modified contracts and agreements retention of attorneys and other professionals , Reorganization bankruptcies allow you to reorganize debts by treating different creditors differently.
Some must be paid 100% of whatever you them.
However, some creditors (such as unsecured creditors) will receive only a fraction of what you owe them.
You and your lawyer will come up with a plan that explains how much you will pay each creditor.
In a Chapter 11, this plan is called your “reorganization plan.”In a Chapter 13, it is called a “repayment plan.” A typical Chapter 13 repayment plan will look like this:
You will pay secured creditors 100% of what you owe them unless you want to turn over the asset that secures the loan.
Secured loans include things like vehicles or equipment secured by a loan.
You will pay “priority” debts at 100%.
These are debts you can’t discharge in bankruptcy.
You will pay administrative expenses at 100%.
These include your filing fees and lawyer’s fees.
You will pay unsecured creditors based on whatever disposable income you have remaining each month.
Depending on your income, unsecured creditors might get anywhere from 0-100% of what they are owed.
Generally, they get only a small percentage. , “Impaired” creditors have the right to approve or reject your reorganization plan.
A creditor is impaired if, under the plan, they will receive less than what they are owed.You file your plan with the court and send ballots to impaired creditors.
Even if the creditors reject your plan, you can ask the judge to approve it anyway.
Judges have the power to approve a plan if it is fair. , The judge ultimately must approve your reorganization or repayment plan.
Accordingly, the judge will analyze the plan to make sure it satisfies certain criteria.
In particular, a judge in a Chapter 11 case will look for the following:
Feasible.
The plan must have a likelihood of success.
You must show you will generate enough revenue to cover the debt payments under your plan.
Offered in good faith.
In the best interests of creditors.
Basically, creditors must receive as much under your plan as they would in a Chapter
7.
Fair and equitable.
For example, secured creditors must receive the value of their collateral.
Also, equity holders (stockholders) lose their equity interest in the company. , In a Chapter 13, your repayment plan will last three to five years.
You must make all payments under the plan.
If you don’t, the judge can dismiss your case or convert it to a Chapter
7.
In either scenario, you will lose business assets.
You might find you can’t follow your plan.
In that situation, you’ll need to work with your attorney to submit a modified plan.
You can submit modified plans in both Chapter 11 and Chapter
13.
However, the judge must approve them., Your business assets won’t be safe until you receive a discharge.
You will receive a discharge at different points in the bankruptcy, depending on the chapter you file.
In a Chapter 11, you generally receive a discharge of pre-petition debts at the time your plan is confirmed.In a Chapter 13, you will receive the discharge after you make all payments under your plan.This means you have to wait three to five years. -
Step 3: File for bankruptcy.
-
Step 4: Continue to run your business.
-
Step 5: Submit your reorganization plan.
-
Step 6: Have creditors approve the plan in Chapter 11.
-
Step 7: Attend a confirmation hearing.
-
Step 8: Make payments under the plan.
-
Step 9: Receive a discharge of debt.
Detailed Guide
There are two bankruptcy chapters that will let you reorganize your business debts:
Chapter 11 and Chapter
13.
In a reorganization, you come up with a plan to pay your creditors.
Not every business can choose either Chapter 11 or Chapter
13.
Chapter 11 is available to all business entities.
However, it is a complicated bankruptcy and generally used by large, publicly-traded companies.
A simplified version is available for small businesses that have less than $2.19 million in total debts.Chapter 13 is available only for sole proprietorships.
Other business entities that want to reorganize debts must choose Chapter
11.Chapter 13, however, has certain debt limits.
You cannot have more than $394,725 in unsecured debt or more than $1,184,200 in secured debt.
You will need a lawyer to file for you.
You can find a qualified bankruptcy lawyer by contacting your local or state bar association and asking for a referral.Call up the attorney and schedule a consultation.
Discuss your options with the lawyer.
For example, if you are sole proprietor, you have multiple options—Chapter 11, 13, or even Chapter
7.
Ask the lawyer to walk you through the process.
Also ask how much it will cost to hire the lawyer.
You can include lawyer’s fees in your repayment plan for either Chapter 11 or Chapter
13. , You file for bankruptcy by submitting a bankruptcy petition and information about your debts and assets.
Generally, you will file in the district where your principal place of business is located.Your lawyer can file this paperwork for you.
Provide your lawyer with all necessary information.
A Chapter 13 is really a personal bankruptcy, so you will want to include any personal debts you want to reorganize, such as personal credit cards or medical debt.
Your lawyer will need this information to include with the petition. , Because you are reorganizing debts, you continue to run your business.
However, you might need the court’s approval for certain business decisions.
In a Chapter 11, for example, you need a judge to approve the following:sale of assets (other than inventory) new leases expansion of your business operations new or modified contracts and agreements retention of attorneys and other professionals , Reorganization bankruptcies allow you to reorganize debts by treating different creditors differently.
Some must be paid 100% of whatever you them.
However, some creditors (such as unsecured creditors) will receive only a fraction of what you owe them.
You and your lawyer will come up with a plan that explains how much you will pay each creditor.
In a Chapter 11, this plan is called your “reorganization plan.”In a Chapter 13, it is called a “repayment plan.” A typical Chapter 13 repayment plan will look like this:
You will pay secured creditors 100% of what you owe them unless you want to turn over the asset that secures the loan.
Secured loans include things like vehicles or equipment secured by a loan.
You will pay “priority” debts at 100%.
These are debts you can’t discharge in bankruptcy.
You will pay administrative expenses at 100%.
These include your filing fees and lawyer’s fees.
You will pay unsecured creditors based on whatever disposable income you have remaining each month.
Depending on your income, unsecured creditors might get anywhere from 0-100% of what they are owed.
Generally, they get only a small percentage. , “Impaired” creditors have the right to approve or reject your reorganization plan.
A creditor is impaired if, under the plan, they will receive less than what they are owed.You file your plan with the court and send ballots to impaired creditors.
Even if the creditors reject your plan, you can ask the judge to approve it anyway.
Judges have the power to approve a plan if it is fair. , The judge ultimately must approve your reorganization or repayment plan.
Accordingly, the judge will analyze the plan to make sure it satisfies certain criteria.
In particular, a judge in a Chapter 11 case will look for the following:
Feasible.
The plan must have a likelihood of success.
You must show you will generate enough revenue to cover the debt payments under your plan.
Offered in good faith.
In the best interests of creditors.
Basically, creditors must receive as much under your plan as they would in a Chapter
7.
Fair and equitable.
For example, secured creditors must receive the value of their collateral.
Also, equity holders (stockholders) lose their equity interest in the company. , In a Chapter 13, your repayment plan will last three to five years.
You must make all payments under the plan.
If you don’t, the judge can dismiss your case or convert it to a Chapter
7.
In either scenario, you will lose business assets.
You might find you can’t follow your plan.
In that situation, you’ll need to work with your attorney to submit a modified plan.
You can submit modified plans in both Chapter 11 and Chapter
13.
However, the judge must approve them., Your business assets won’t be safe until you receive a discharge.
You will receive a discharge at different points in the bankruptcy, depending on the chapter you file.
In a Chapter 11, you generally receive a discharge of pre-petition debts at the time your plan is confirmed.In a Chapter 13, you will receive the discharge after you make all payments under your plan.This means you have to wait three to five years.
About the Author
George Jenkins
Committed to making hobbies accessible and understandable for everyone.
Rate This Guide
How helpful was this guide? Click to rate: