Orange County Business Bankruptcy Attorneys

Unfortunately, many small businesses struggle to stay afloat for a full year, let alone five or ten years. If a business acquires overwhelming business debts, this may mean the business doesn’t have a viable future. In this case, Chapter 7 bankruptcy is often the best choice.

Also known as liquidation bankruptcy, Chapter 7 could benefit a limited liability company, sole proprietorship, or general partnership. It can also benefit businesses that don’t have a considerable amount of assets. This is what leads some business owners to choose Chapter 7, as a Chapter 13 reorganization would make less sense.

However, as with personal debt bankruptcies, businesses must pass a means test to file Chapter 7. The Chapter 7 means test determines whether the business’s income exceeds a certain amount. If so, that business cannot file Chapter 7. If the business’s income does not exceed the predetermined amount, it may file and benefit from Chapter 7.

After the Chapter 7 case begins, the bankruptcy court appoints a Chapter 7 trustee to take control of the business’s assets. These assets will be distributed to the creditors (liquidated). Once the assets have been distributed, the trustee will be paid for their role in the case. Sole proprietorships will receive a bankruptcy discharge, while partnerships and corporations will not. To learn more, reach out to an Orange County Chapter 7 bankruptcy lawyer at Marshack Hays Wood today.

For businesses that have a chance to continue their operations, Chapter 11 bankruptcy is often a better option. In most cases, corporations and partnerships will file Chapter 11, while sole proprietorships will file Chapter 7. However, many sole proprietorships use it when they cannot pass the means test to file Chapter 7.

In Chapter 11 bankruptcy, the company reorganizes its finances and remains in business under the supervision of a Chapter 13 trustee. The company proposes a reorganization plan on how it intends to handle its creditors. The plan may include actions such as recovering assets, terminating contracts or leases, and repaying a portion of the debt while discharging the rest to become profitable again. Creditors will then vote on the company’s plan. If those creditors and the bankruptcy court deem the plan to be fair and reasonable, the plan is approved. Then, the plan proceeds as proposed.

Chapter 11 cases are very complicated, and many do not succeed because of minor mistakes. In fact, it often takes a year or longer for a company’s reorganization plan to be approved. Working with a skilled Orange County Chapter 11 bankruptcy attorney can give you the support and insight you need for smooth sailing through your bankruptcy case.

As of August 2019, the Small Business Reorganization Act gives filers another option for filing under Chapter 11.

Subchapter V is a streamlined form of Chapter 11 designed for small business debtors within statutory limits. It reduces costs, speeds up plan confirmation, and keeps owners more involved in the process. It also does not require the appointment of a committee of creditors, nor does it require those creditors to approve the court plan.

Depending on the specifics of your case, Subchapter V may or may not be beneficial over filing for regular Chapter 11. Of course, we highly recommend speaking personally with a business bankruptcy attorney to determine which is the best course of action for you.

Most Chapter 13 bankruptcy cases are reserved for individuals, but sole proprietorships may also file under Chapter 13. This is possible because sole proprietorships are essentially extensions of their owners, making them indistinguishable. One might pursue small business bankruptcy under Chapter 13 if their goal is reorganization. It’s also important to note that during the Chapter 13 process, the sole proprietorship can remain in business.

In this case, you would file a plan for reorganization with the proper bankruptcy court that outlines how you intend to repay your debts to your creditors. Depending on income, assets, property, and total debt, the amount you are required to repay can differ. Chapter 13 is an especially popular option for sole proprietors whose personal assets are intermingled with their business assets. It is also popular for its ability to stop foreclosure, which may not be an option under Chapter 7. 

Think this might be the right chapter for you? Call an experienced California Chapter 13 bankruptcy lawyer at our firm to discuss and identify your best options moving forward.