It is very hard to run a business. Owners work tirelessly to ensure their success and make a profit. Sometimes, running a business does not always go as planned. When a business struggles financially, the owner may need to look into filing for bankruptcy. While it may seem intimidating, doing so can help a business and even save it during a very difficult time. When facing this situation, it is crucial to contact an experienced attorney that can guide you to the best possible outcome.
Chapter 7 Business
When a business owner files for Chapter 7 Bankruptcy, they must liquidate its assets. This allows them to pay off any outstanding debts. This may be the right choice if a business is not worth more than these debts. In order to go through with this process, the business owner must file a petition that provides the Bankruptcy Court with their assets, liabilities, current income, expenditures, contracts, and leases. A business can file for Chapter 7 if finds itself in one of the following situations:
- It has little to no potential of profit
- Its debts are worth more than its assets
- It is not possible to restructure debts
When this is successful, a business may be cleared of any remaining unsecured debts. Unfortunately, in many cases, it ends with the business closing.
Chapter 11 Business
When Chapter 11 Bankruptcy is filed, a business is allowed to stay open and functioning. This allows it to continue making an income and keep employees on retainer. With this process, a 5-year payment plan is put in place. This lets the business owner restructure their debt and pay it over time. During this process, The Bankruptcy Court protects the business so creditors and banks cannot shut it down.
When this process is successful, the business can begin making a profit again when their debt is paid. In order to file for Chapter 11, the business owner must file a petition that includes a list of assets, liabilities, and any outstanding contracts or leases.
When bankruptcy is filed, the Bankruptcy Court enforces the “Automatic Stay.” This prohibits creditors from participating in any collection activities against the business. This may consist of lawsuits, calls/letters, bank restraints, or repossessions. Enforcing this gives the business owner a sense of relief as they work to pay back their debts. The benefits of the automatic stay are:
- It is filed immediately
- Collectors cannot pursue debts
- Prevents harassment
- Gives you room to breathe while recovering stability
Juan C. Velasco, Esq. is a trusted attorney who concentrates on bankruptcy, family law, real estate, and estate matters who has been serving the New Jersey area for over 20 years. If you are in need of experienced legal counsel, please contact Velasco Law Office and we will be happy to assist you.