All businesses go through lean times. If you are facing financial hardships as a business owner there are strategies to help you manage debt and hopefully hold onto your business – and perhaps prevent you from going to court. To guide you through the complex process of identifying the best legal options when faced with financial hardship you will want to consult a Florida bankruptcy attorney.
Understanding Bankruptcy: What It Really Means
When a business is in trouble, there are various legal options. It’s important to demystify the term ‘bankruptcy’ for business owners. Here, we examine the legal and financial implications of declaring bankruptcy.
Bankruptcy begins with an “automatic stay” halting everything. Assets are frozen, and payments are stopped. The Debtor (someone who owes more money than they can repay) gets a reprieve and through the process of bankruptcy, the debt will either go away (be “forgiven” or “discharged”) or it will be repaid over time. The filing of bankruptcy will keep the creditors at bay – hopefully long enough for the business to become profitable again. All businesses including partnerships, corporations, and LLCs can file bankruptcy under Chapter 7, 11, 12, or 13. A filing of Chapter 7 will mean the business will have to close.
Your attorney will explain the relevant portions of The Bankruptcy Code and Federal Rules of Bankruptcy Procedure and which ones you are eligible to file. Other considerations include which debts can be deleted, how long you have for repayment, and what possessions you can keep.
Different Types of Bankruptcy: Chapters 7, 11, & 13
There are primarily three types of bankruptcy:
- Chapter 7: this gives you a better chance to keep business inventory and personal property, and the only required repayment is on secured debts (one backed by collateral)
- Chapter 11: this is only for businesses, and it allows you up to six years to repay your debts, plus your business can stay open
- Chapter 13: this means the court will reorganize your debts under the court system and give you time to repay them, and unsecured debts like credit cards may never be repaid
There are advantages and disadvantages to each type.
Business Reorganization: Prerequisites and Processes
One way to avoid bankruptcy is to reorganize the business. It’s not just to stave off bankruptcy. Many businesses do a reorganization to make a business more profitable. There are a number of ways to do it:
- Changing the ownership structure
- Renegotiating debts
- Merging with another company
- Changing the liabilities and assets, for instance, transferring them to a new company
- Selling off product lines or entire departments or divisions
- Laying off employees
Additionally, engaging in thorough financial analysis and seeking expert legal counsel are critical steps to ensure that reorganization plans comply with bankruptcy laws and regulations, ultimately aiming to secure the company’s long-term viability. This strategic approach allows businesses to realign their resources and operations, potentially emerging stronger and more competitive post-reorganization.
Seek the Help of an Experienced Business Bankruptcy Attorney
So, what is the best way for your business to weather the storm? File bankruptcy or do a business reorganization? A Florida bankruptcy attorney with knowledge and experience will help you understand your options and make the best decision for your company. Contact us today.