Businesses are like individuals in that situations happen, and sometimes they can't repay the debts they've amassed. North Carolina companies seek out debt relief options as a result. Below, our attorneys at Ivey, McClellan, Siegmund, Brumbaugh & McDonough, LLP share some details you need to know about if business bankruptcy is on the horizon for you and your Greensboro company.
Types of Bankruptcy Businesses Can File
There are two primary corporate bankruptcy options to choose from. You can either choose Chapter 7 or 11 bankruptcy for your business.
What To Know About the Chapter 7 Business Bankruptcy Process
The Chapter 7 bankruptcy process is reserved primarily for businesses that don't have a formal legal structure, although partnerships and LLCs can also pursue this debt relief option.
Chapter 7 business bankruptcy works much like a personal bankruptcy. It generally requires the debtor to liquidate all their assets and turn over the proceeds from that sale to their creditors.
The liquidation of assets renders businesses defunct, meaning it goes out of business as part of the Chapter 7 business bankruptcy process. Despite this, our business bankruptcy lawyer team wants you to know that each jurisdiction allows for some asset exemptions. North Carolina business owners may be able to keep these exempt items.
What Happens When Sole Proprietors File Chapter 7 Bankruptcy
One piece of good news is that if the primary source of your debt as a sole proprietor is business-related, then it's unnecessary to pass the means test typically required of individual debtors filing for Chapter 7 bankruptcy. You may be able to move forward with this business bankruptcy option and wipe clean all debts to credit card companies, landlords, vendors, and suppliers. This means you can have relief from debt collector attempts forever within a matter of months.
Chapter 7 Bankruptcy Among Partnerships
Members of a partnership can also expect their professional arrangement to fold after filing Chapter 7 business bankruptcy. It's also important to note that if just one partner files bankruptcy, then it's likely that a creditor will come after the other to recover what they're owed.
Partnership agreements often feature a "kill switch," meaning the entire business arrangement ceases to exist if one partner unilaterally files Chapter 7 bankruptcy. This clause in the agreement ensures a partner won't be solely left on the hook for the partnership's debts if something like this happens. However, the partnership type can also affect whether one or both partners are ultimately forced to assume personal liability for any debts their Greensboro, NC business arrangement incurred.
What Happens When LLCs File for Chapter 7 Bankrutpcy
An LLC filing for Chapter 7 bankruptcy will also have to liquidate its assets to repay creditors, just like sole proprietors or partners. LLC owners generally aren't personally liable for any debts the business incurred unless they personally guaranteed them.
What To Know About the Chapter 11 Business Bankruptcy Process
Chapter 11 is a reorganization or restructuring type of bankruptcy. Greensboro businesses, including sole proprietorships, partnerships, and corporations, often opt to file Chapter 11 business bankruptcy when they need debt relief yet want to continue operating their business. It allows these companies to get their finances back on track.
The Chapter 11 bankruptcy process allows business owners to reorganize their debts and enter into a repayment plan with their creditors. Another name for this bankruptcy is "debtor in possession," which refers to a Greensboro company's ability to keep using the assets they are in arrears on while continuing to pay back what's due per the agreed-to payment plan.
Filing for Chapter 11 bankruptcy used to only be a feasible option for enterprise-level corporations since it was so costly to pursue. However, the Small Business Reorganization Act of 2019 made it easier for small to mid-size companies to file for Chapter 11 bankruptcy.
Deciding whether bankruptcy is the right type of debt relief for your company can be challenging. Choosing between Chapter 7 and 11 bankruptcy isn't always easy to determine. One of our business bankruptcy lawyers at our Greensboro law firm of Ivey, McClellan, Siegmund, Brumbaugh & McDonough, LLP can help you make an informed decision about what to do.
Timing Matters in Business Bankruptcy Cases
When you meet with a business bankruptcy lawyer here in our Greensboro, NC office, they often advise our clients that timing is a critical component in the North Carolina bankruptcy process. They do so because there are:
- Restrictions on how close to your filing date you can transfer property
- Quick turnaround dates that apply to when you submit certain disclosures to the trustee in bankruptcy
- Timelines in place for how long you have to submit a reorganization or repayment plan
- Limitations on how often you can file for debt relief through bankruptcy
If you fail to abide by pre-designated timelines, the United States trustee may dismiss your case. If this happens, there won't be a bankruptcy discharge of your company's debts, leaving you to field harassing creditor calls, emails, and letters until you're eligible to file bankruptcy again.
How Common Business Bankruptcy Filings Are
Filing bankruptcy on behalf of your business may evoke different emotions. It's common to feel overwhelmed by your debt problems and simply want to see your financial slate wiped clean. Rest assured you're not alone in pursuing this debt relief option. Estimates show that as many as 55,000 companies file bankruptcy annually in North Carolina and across the country.
Most of your fellow Greensboro business owners who file for bankruptcy do so because they quickly assumed too much debt that outpaced their revenue generated during that period of time. Business owners threatened with legal action often pursue bankruptcy to end creditor communication and resolve their financial problems.
Our business bankruptcy attorneys at Ivey, McClellan, Siegmund, Brumbaugh & McDonough, LLP know the ins and outs of the United States bankruptcy code. We're ready to discuss whether considering bankruptcy is the right debt relief option for your North Carolina business. If so, we can help answer any additional questions you may have to help you choose between Chapter 7 and Chapter 11. Reach out to us to discuss your Greensboro company's financial situation with a bankruptcy lawyer so we can go over your options in your case so you can finally get that fresh start you want and need.