The United States legislation regarding bankruptcy (the U.S. Bankruptcy Code) holds the procedures for reorganizing and restructuring debt, both for individuals and businesses. Chapter 11 of this Code outlines the means of filing bankruptcy for a business organization, when the business wants to continue operation in order to obtain a safer financial status when the proceedings of the bankruptcy case are over. The debtor (or business) works closely with the court trustee and the two create a plan to essentially rebuild the business’s operations and structure, as well as clarifying and reworking debts to be able to pay off anything left owed to creditors. The trustee works closely with the proceedings for bankruptcy for a business organization, and makes sure the day-to-day process goes smoothly.
How to File Bankruptcy as a Business
At the bankruptcy court, you need to find the clerk and ask for a “Chapter 11 petition form.” This is one of many forms used by these clerks to help consumers and businesses begin their bankruptcy proceedings if they have no legal representation. The form includes instruction on how to begin your bankruptcy for a business organization.
- After getting the form, follow the instructions exactly. This will include providing lots of information about your business, including assets, debts, expenses, incomes (your tax forms will help) and how your business can complete a repayment plan. Make the plan clear!
- Once you’ve completed the form totally, bring it back to the clerk at the bankruptcy clerk for filing.
- When you file the petition, you’ll need to pay a filing fee. Various courts require various fees, depending on your district or other jurisdiction area. The clerk will clarify the specific fees for bankruptcy for a business organization.
These Chapter 11 cases tend to be much more complicated than other bankruptcy proceedings, and as such an experienced attorney is critical if you want to preserve your business’s interests. Bar associations are services that maintain directories of legal aid (especially attorneys) specialized in whatever area you need (in this case, bankruptcy for a business organization). You can find out more information about your nearest bar association at the website for the American Bar Association, or at their offices:
American Bar Association
321 N Clark St.
Chicago, IL 60654-7598
Know Before You File
If you file a Chapter 11 bankruptcy for a business organization, it is required that you create a reorganization plan for your business’s operations as well as a plan that guarantees restructuring your debt. When you submit this important plan to the bankruptcy court trustee you will be working with, he will check it and if you’ve done it correctly, approve it.
Chapter 11 vs. Other Bankruptcy Plans
Chapter 11 bankruptcies, the ones we’ve been discussing, allow the business filing to remain open. While the court proceedings are under way, the daily operations of the business remain unchanged and are controlled by the management of the business but the bankruptcy court handling the proceedings will need to approve any major decisions made by the business, to ensure that the plan to pay off debt, restructure, and reorganize will be met accordingly. During the reorganization, a stay to protect all company assets is issued; some debts may be renegotiated and the company’s structure in managements and corporate strategy may be very largely changed, in order to ensure that the court’s plan is met. Small enterprises can file bankruptcy for a business organization under Chapter 11 under the title of “small business” if it continues to actively operate its company and as long as its debt does not exceed $2,343,300. This way, a Chapter 11 filing will help small businesses keep assets while the debt is worked out.
Chapter 7 bankruptcies are much different. They require the liquidation of any and all assets that the filing business may have, because this type of debt usually entails a very small chance of the business regrouping and continuing everyday operations. This type of filing also uses a trustee; however, the trustee will oversee the liquidation of assets, paying of fees and distribution of balance to creditors much more closely than in Chapter 11 as well as having much more power in the company’s management. When a business files Chapter 7, there is little to no way to protect assets.
Chapter 13 also puts a stay on the business’s assets to protect them from creditors, and is typically used by an individual or an individual in sole proprietorship of a company. As of 2012, the limit to file Chapter 13 was $360,475 for unsecured debt. For secured debt, the limit rose to $1,081,400. With this filing, a plan to continue creditor payment is formulated (usually completed in between three and five years, but that can vary greatly case to case). Depending on your debt, this plan may allow you to remain in business with your assets.
A Final Word on Transfers
Your attorney will always know best! Follow his or her advice on the transfer or sale of your business’s assets, because some transfers (especially if done just before you file bankruptcy) could be seen by a judge as fraudulent. These include moving all your large assets, removing, or worse, concealing assets, and transferring immediately before a lawsuit. Should a transfer be reversed by a court, these assets could become available to your creditors. Listen to your attorney.