Small Business Bankruptcy Attorney Orange County
Practice Areas
LLC Bankruptcy Lawyer in Orange County, CA
At Marshack Hays Wood, an experienced bankruptcy law firm in Orange County, CA, our attorneys are highly experienced in helping small business owners navigate the complexities of small business bankruptcy. We understand that facing financial distress as a small business owner can be overwhelming. Our dedicated small business bankruptcy team is here to provide you with the knowledge and support you need to make informed decisions about your financial future.
Whether you’re considering Chapter 7, Chapter 11, or Chapter 13 for businesses, our seasoned Orange County business bankruptcy lawyers are committed to guiding you through every step of the process. With Marshack Hays Wood by your side, you can trust that you’re in capable hands while working toward a fresh start for your business.
To schedule a free consultation with us, please call our office at (949) 333-7777 today.
The Small Business Reorganization Act
The Small Business Reorganization Act (SBRA) was enacted in 2019 to provide small businesses with a streamlined and cost-effective pathway for restructuring debts under Chapter 11 bankruptcy. This legislation aims to make the Chapter 11 process more accessible and efficient for small businesses by reducing administrative burdens and expediting the reorganization process.
The Small Business Reorganization Act allows eligible small businesses to retain ownership and control while developing a feasible repayment plan over time, helping them overcome financial challenges and achieve long-term sustainability.
Can a Small Business File Bankruptcy?
Yes, small businesses can file for bankruptcy protection under various chapters of the Bankruptcy Code, depending on their business structure. Unlike in a personal bankruptcy, a business bankruptcy may allow filers to wipe out both business debts and personal debts. Sole proprietors, partnerships, limited liability partnerships (LLPs), corporations, and limited liability corporations (LLCs) can all file bankruptcy under the Bankruptcy Code.
Sole Proprietorships
A sole proprietorship can file for bankruptcy. This is a business structure where the owner and the business are considered one entity instead of a separate legal entity. So, the sole proprietor is personally liable for the debts of the business. Therefore, filing for bankruptcy as a sole proprietorship typically involves personal bankruptcy proceedings, such as Chapter 7 or Chapter 13. The process can involve both business and personal assets.
In Chapter 7, the business’s assets are liquidated to pay off creditors, while in Chapter 13, a repayment plan is devised to gradually pay off debts over a period of time. This allows the sole proprietor to address their financial challenges and potentially obtain relief from overwhelming debt while seeking a fresh start for their business entity.
Partnerships and Limited Liability Partnerships (LLPs)
Partnerships and limited liability partnerships (LLPs) can file for bankruptcy protection under the United States Bankruptcy Code. When a partnership or LLP faces financial distress and is unable to meet its obligations, it can file for bankruptcy under Chapter 7 for liquidation of assets or Chapter 11 for reorganization and debt restructuring.
In Chapter 7, the partnership’s assets are sold, and the proceeds are used to pay off creditors. Chapter 11 allows the partnership to develop a repayment plan to restructure its debts and continue operating. Filing for bankruptcy as a partnership or LLP provides a legal framework for addressing financial challenges and potentially achieving a more sustainable financial future.
Corporations and Limited Liability Corporations (LLCs)
Corporations and limited liability companies (LLCs) can also file for bankruptcy protection. When a corporation or limited liability company faces financial difficulties and cannot meet its obligations, it can file for bankruptcy under Chapter 7 for liquidation of assets, Chapter 11 for reorganization and debt restructuring, or in some cases, Chapter 13 if it qualifies as a small business.
Chapter 7 involves the sale of the company’s assets to pay off creditors, while Chapter 11 allows the company to develop a repayment plan to restructure its debts and continue operating. Filing for bankruptcy as a corporation or LLC provides a legal framework for addressing financial challenges and potentially achieving a more sustainable financial future.
Types of Bankruptcies for Small Businesses
For small businesses, the US Bankruptcy Code outlines three primary options for filing bankruptcy: Chapter 7, Chapter 11, and Chapter 13. Each chapter serves a specific purpose and has specific requirements a business must meet to file under that chapter.
Chapter 7 Bankruptcy for Business
Also known as liquidation bankruptcy, Chapter 7 involves the sale of the business’s assets by a court-appointed trustee to pay off creditors. Once the assets are liquidated, the remaining eligible debts are discharged, providing the business with a fresh start.
Sole proprietors, partnerships, corporations, and LLCs can file for Chapter 7 bankruptcy. Notably, if you have more business debt than personal debt, you won’t have to pass the Chapter 7 means test.
Liquidation of Business Assets
In Chapter 7 bankruptcy filings, the business’s assets are sold by a court-appointed trustee to pay off creditors. The trustee identifies and evaluates the business’s assets, which may include property, equipment, inventory, and other tangible and intangible assets.
These assets are then sold, and the proceeds are distributed among creditors according to a priority hierarchy established by bankruptcy law. Once the assets are liquidated and creditors are paid, any remaining eligible debts are discharged, providing the business with a fresh start free from most debts.
Chapter 11 Bankruptcy for Business
Chapter 11 bankruptcy is a reorganization bankruptcy primarily used by businesses to restructure their debts and continue operations. It allows the business to develop a repayment plan to repay creditors over time while maintaining control of its assets and operations.
Chapter 11 is typically more complex and expensive than other bankruptcy options but offers more flexibility. Corporations and LLCs commonly use it but can also be utilized by sole proprietors and partnerships.
Chapter 13 Bankruptcy for Business
While primarily designed for individuals, Chapter 13 bankruptcy can also be utilized by small businesses that qualify as “individuals with regular income.” This type of bankruptcy involves creating a repayment plan to pay off creditors over three to five years. Keep in mind that Chapter 13 will only wipe out one’s personal liability for business debts.
It allows the business to retain its assets and continue operating while repaying debts according to the plan. Chapter 13 is typically used by sole proprietors and partnerships with smaller debts and more predictable income streams to pay creditors. This includes secured and unsecured creditors.
How Can Bankruptcy Help Your Business?
Bankruptcy can provide relief and a path to financial recovery for struggling businesses. By filing for bankruptcy, businesses can halt creditor collection actions, such as lawsuits and foreclosures, providing immediate relief from financial pressures.
Bankruptcy also allows for the reorganization of debts, providing an opportunity to negotiate more favorable repayment terms with creditors. Additionally, bankruptcy can enable businesses to streamline operations, shed unprofitable assets or contracts, keep the business afloat, and focus on core strengths.
It provides a structured process for debt resolution, helping to eliminate or reduce overwhelming debts and allowing the business to emerge stronger and more financially stable. Moreover, bankruptcy can protect business owners from personal liability for business debts, depending on the business structure. Overall, bankruptcy offers a legal framework for businesses to address financial challenges, restructure debts, and obtain a fresh start toward long-term viability.
How to Claim Bankruptcy for a Small Business
Small businesses can file for bankruptcy by taking several key steps. First, assess your business’s financial situation thoroughly to determine if bankruptcy is the most suitable option. Consulting with a bankruptcy attorney can provide valuable insights into the available options and potential outcomes. Next, select the appropriate bankruptcy chapter based on factors such as your business’s legal structure, amount of debt, and financial goals.
Before filing bankruptcy, small businesses typically must undergo pre-bankruptcy counseling with an approved credit counseling agency. This counseling session helps assess the financial situation and explore alternatives to bankruptcy. Once completed, gather all necessary financial documents, including income statements, tax returns, and a comprehensive list of assets and liabilities.
With the guidance of a bankruptcy attorney, prepare and file the bankruptcy petition, along with required schedules and forms, with the bankruptcy court. The petition officially initiates the bankruptcy process and triggers an automatic stay, halting creditor collection actions against the business.
How Does Small Business Bankruptcy Work?
Small business bankruptcy typically involves evaluating the business’s financial situation, selecting the appropriate bankruptcy chapter, and initiating the bankruptcy process through the filing of a petition with the bankruptcy court. Depending on the chosen chapter—such as Chapter 7 for liquidation, Chapter 11 for reorganization, or Chapter 13 for repayment—the business may undergo asset liquidation, develop a repayment plan, or continue operations under court supervision.
Throughout the process, the business must comply with court requirements, attend meetings with creditors and the bankruptcy trustee, and provide necessary documentation. Ultimately, bankruptcy offers a structured framework for addressing financial challenges, negotiating with creditors, and obtaining relief from overwhelming debt, potentially providing the business with a fresh start and an opportunity for financial recovery.
What Happens When a Small Business Files for Bankruptcy?
When a small business files for bankruptcy, it initiates a legal process aimed at resolving its financial difficulties. The business typically begins by selecting the appropriate bankruptcy chapter based on its circumstances, such as Chapter 7 for liquidation or Chapter 11 for reorganization.
Once the bankruptcy petition is filed with the court, an automatic stay is enacted, halting creditor collection actions. Depending on the bankruptcy chapter, the business may undergo asset liquidation, develop a repayment plan, or continue operations under court supervision. Throughout the process, the business must adhere to court requirements, attend meetings with creditors and the trustee, and provide necessary documentation.
Ultimately, bankruptcy offers a structured framework for addressing financial challenges, negotiating with creditors, and potentially obtaining relief from overwhelming debt, providing the business with an opportunity for a fresh start and financial recovery.
Does Bankruptcy Clear All Business Debt?
Bankruptcy doesn’t necessarily clear all business debt. The extent to which debts are discharged depends on the type of bankruptcy filed and the nature of the debts. In Chapter 7 bankruptcy, most unsecured debts, such as credit card balances and medical bills, are typically discharged, relieving the business of the obligation to repay them. However, certain debts, such as taxes, secured debts (backed by collateral), and debts resulting from fraud or illegal activities, may not be discharged.
In Chapter 11 bankruptcy, the business typically develops a repayment plan to reorganize debts and continue operating. While some debts may be discharged as part of the plan, the business usually repays a portion of its debts over time.
Chapter 13 bankruptcy, primarily designed for individuals, may be available to small businesses that qualify as “individuals with regular income.” Similar to Chapter 11, Chapter 13 involves creating a repayment plan to pay off debts over three to five years. Again, not all debts may be discharged, and the business may be required to repay a portion of its debts.
Can You Start a New Business After Bankruptcy?
Yes, you can start a new business after bankruptcy. While bankruptcy may impact your ability to obtain financing or credit in the short term, it doesn’t permanently bar you from entrepreneurship. Starting a new business after bankruptcy may require careful financial planning, bootstrapping, or seeking alternative sources of funding such as investors or crowdfunding.
Additionally, demonstrating responsible financial management and a solid business plan can help rebuild trust with lenders and investors over time. Many successful entrepreneurs have launched thriving businesses after experiencing bankruptcy, using it as a learning experience to build a stronger foundation for future endeavors. Ultimately, nothing in bankruptcy law states that you cannot start another business after filing bankruptcy.
Will Business Bankruptcy Affect My Credit?
Yes, business bankruptcy can affect your credit, but the extent of the impact depends on various factors, including the type of bankruptcy filed and your individual circumstances. In Chapter 7 bankruptcy, where the business’s assets are liquidated to pay off creditors, the bankruptcy will typically appear on your personal credit report if you are personally liable for business debts.
This can negatively impact your credit score and make it more challenging to obtain credit in the future. Chapter 11 bankruptcy, which involves reorganizing debts to continue business operations, may also affect your credit, but the impact may be less severe compared to Chapter 7.
Is Bankruptcy the Best Choice for Your Small Business or LLC?
Bankruptcy may be the best choice for a small business or LLC facing insurmountable debt, creditor lawsuits, or imminent closure. For example, if the business is unable to generate sufficient revenue to cover its expenses and debts, filing for bankruptcy could provide debt relief from overwhelming financial pressure and halt creditor collection actions.
Additionally, if the business is experiencing a downturn in the market, unexpected economic challenges, or a significant loss of key clients, bankruptcy may offer a structured process for restructuring debts and reorganizing operations to regain financial stability. Moreover, if the business’s liabilities far exceed its assets, bankruptcy could offer a way to liquidate assets and distribute proceeds to creditors in an orderly manner, potentially allowing the business owner to start afresh.
Our Orange County Bankruptcy Attorneys Can Help Small Business Owners
Working with our bankruptcy attorneys can provide invaluable guidance and support for small business owners navigating the complexities of bankruptcy. We can assess your business’s financial situation, explain the available options, and recommend the most appropriate bankruptcy chapter based on your business’s goals and circumstances. Whether you’re a service-oriented business or a product-oriented business, we’re here to help.
We can handle the intricate paperwork and court proceedings, ensuring compliance with legal requirements and deadlines. Additionally, our team can negotiate with creditors, represent your business’s interests in court, and provide strategic advice throughout the bankruptcy process. Our experience can help streamline the process, maximize the benefits of bankruptcy, and ultimately guide small business owners toward a fresh start and financial recovery.
Contact a Small Business Bankruptcy Attorney at Marshack Hays Wood
In the complex landscape of small business bankruptcy, Marshack Hays Wood is your trusted ally, serving Orange County with unparalleled experience and dedication. With our team of experienced bankruptcy attorneys by your side, navigating the challenges of financial distress becomes manageable. Whether you’re considering liquidation, reorganization, or exploring alternatives, we provide personalized guidance tailored to your unique circumstances.
At Marshack Hays Wood, we understand the importance of a fresh start and are committed to helping you rebuild with confidence. Let us guide you through every step of the bankruptcy process, empowering you to emerge stronger and more resilient than ever before. Whether you’re looking to file business or consumer bankruptcy, our team is here for you. Give us a call at (949) 333-7777 or reach out online to get started today.
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