Commercial & Business Bankruptcy LitigationBusiness Bankruptcy

Chapter 7, Chapter 13, and Chapter 11

Is your business in Northeastern Florida drowning in debt due to the cornavirus (COVID-19), or some other reason? Are you finding it hard to pay your lease or make payroll? Are their loans coming due, which you are unable to pay? Are you behind on Taxes? If you answered yes to any of the questions, then you should speak with a business bankruptcy attorney.

What Type of Bankruptcy is right for me?

Under the U.S. Bankruptcy Code, there are three types of bankruptcy options available. Referred to as chapters, they are Chapter 7, Chapter 13, for personal bankruptcy and Chapter 11 for businesses. But, depending on the need, each can be applied to small businesses in and around Jacksonville, Florida.

Is your Jacksonville, Florida Business Struggling? Could a Business Bankruptcy be the Right Answer?

Many small businesses end up going out of business within the first few years, and right now, even larger businesses and corporations are facing a loss of business and financial hardship. Only around 20% of small businesses end up successful, and the other 80% are left with debts, expenses, and in need of a solution to their closed operation, A business bankruptcy in Jacksonville Florida could be the answer if your business is located in this area and is struggling or going under.

Business bankruptcies, whether they occur in Jacksonville, Florida or elsewhere in the USA, must go through a federal court process that is intended to help the business with either debt elimination or debt repayment under Bankruptcy Court protection and guidance. When a business files for bankruptcy, it is usually referred to as either a reorganization or a liquidation, depending on the chapter used for the case.

How is your Jacksonville, Florida Business Structured?  

If you are considering a business bankruptcy in Jacksonville, Florida, or anywhere else in the state or country, then it is vital to use the right chapter of the bankruptcy code for your case and the structure of your business so that you get the results that you want and need.

The three main business structure types used are:

  1. Sole Proprietorship– This type of business is viewed as a legal extension of the business owner. As a result, the owner (you) are on the hook for all of the liabilities and assets that the company has. In this situation, a Chapter 13 business bankruptcy can be the best solution, allowing the debts to be reorganized and repaid so that you do not lose any business or personal assets in the process.
  2. Partnership– In this business structure, the company is an entity separate from the owners, protecting assets that the individual personally owned outside of the business. With this structure, a chapter 7 or chapter 11 business bankruptcy is usually the best choice.
  3. Corporation– A corporation is structured similarly to a partnership as far as business bankruptcy is concerned, in Jacksonville, Florida, and the rest of the United States. Chapter 7 and chapter 11 are typically used for corporations that file for bankruptcy protection.

Chapter 7 Bankruptcy for Businesses: Liquidation 

If your business is going under and it has no realistic future, then a chapter 7 business bankruptcy is typically used. This is typically called liquidation because of the debts that the business has been so enormous that they make any restructuring almost impossible. Any business structure can use this chapter of the bankruptcy code.

Chapter 7 makes sense if your business has few or no assets available and also if you have a sole proprietorship, which is based on your skills because that a reorganization in this situation usually doesn’t make much sense.

In order to file for bankruptcy under chapter 7, the applicant must take a Means Test, which determines whether the income of the applicant exceeds the allowable income level. If the Means Test is not passed, then you would have to file for business bankruptcy under a different chapter of the bankruptcy code in most cases. If you pass the Means Test, then your chapter 7 petition will be approved, and your business will be dissolved.

In this type of Jacksonville, Florida business bankruptcy, the court will appoint a trustee who will take control of any assets that your business has and distribute these to the creditors that you owe. Once the assets have been distributed, and the bankruptcy trustee receives payment, a discharge is issued if you have a sole proprietorship. For partnerships and corporations, a discharge is not issued.

Chapter 11 Bankruptcy for Jacksonville, Florida Businesses: Reorganization 

If your business is in trouble, but it has a good chance of recovering, then a chapter 11 business bankruptcy can be the best solution. Typically corporations and partnerships use this chapter, but it can be used if you have a sole proprietorship, and you didn’t qualify for chapter 13 because you exceeded the income level. A trustee is appointed by the bankruptcy court, and your business will continue to operate under this trustee after it has been reorganized.

A highly detailed reorganization plan must be filed, and this outlines how creditors will be dealt with. A chapter 11 business bankruptcy may allow your company to terminate any leases or contracts, recover a variety of business assets, and repay some of the debt owed while having the remaining debt discharged. Creditors vote on the reorganization plan formulated, and if the court finds that the plan is equitable and just then, the plan will be approved by the bankruptcy court.

A chapter 11 bankruptcy is a very complex case, it can take a considerable amount of time, and not all of these cases will be successful. Simply confirming the reorganization plan with creditors can take a year or more.

Chapter 13 Bankruptcy for Businesses: Debt Adjustment for Sole Proprietors

Typically Chapter 13 is reserved for individual bankruptcies, but since a sole proprietorship business is considered the same as the owner, a company can use this reorganization and debt adjustment tool. The goal of this type of business bankruptcy is to reorganize the company instead of liquidation. A repayment plan is provided to the bankruptcy court, which details how the debts will be repaid.

A chapter 13 bankruptcy for a business is much different than a chapter 7 case. With a Chapter 13 filing, your business can continue to operate while debts are repaid, something that chapter 7 does not allow. Debt repayment amounts are based on earnings, total debts, and any property and other assets owned. A sole proprietorship usually involves mixing personal and business assets, which may lead to the loss of a home or other personal property under chapter 7. Using chapter 13 for your business may help avoid these issues.

Business Bankruptcy and the Small Business Reorganization Act of 2019 

The Small Business Reorganization Act of 2019 was signed into law by President Donald J. Trump after being passed by the U.S. Congress in August of 2019. This law creates a new subchapter of chapter 11 of the bankruptcy code, which becomes effective February 20, 2020. This subchapter favors the applicant and only applies if the applicant chooses to apply it. As an example, this subchapter doesn’t require court plan approval from a creditor committee or the appointment of this type of committee.

Common FAQs About Jacksonville, Florida Business Bankruptcy 

1. What Role Does the U.S. Trustee Play in Bankruptcies, and Who is This?

The U.S. Trustee is a Department of Justice branch which has the responsibility of overseeing bankruptcies, especially chapter 11 cases. The U.S. Bankruptcy Trustee will review operating reports filed by the debtor and track the case progress when compared to benchmarks, which are set early on in the case.

2. Is an Involuntary Bankruptcy Filing Possible?

Not all business bankruptcies are filed voluntarily. An involuntary bankruptcy filing occurs when creditors petition for a business bankruptcy against the debtor. This can occur under either chapter 7 or chapter 11 of the bankruptcy code. In order to file an involuntary petition for business bankruptcy against a company, certain requirements must be met. These include:

· At least three creditors petition the court, or one creditor petitions the court if your company has fewer than 12 debtors, and

· These creditors hold undisputed and noncontingent claims with a value of at least $16,750 based on the failure of the debtor to pay debts as they fall due, or

· A custodian has been appointed over a substantial portion of the assets that your business has, including an assignee for creditor benefit.

3. How Does an Assignment for the Benefit of Creditors Work?

An assignment for the benefit of creditors is an alternative to business bankruptcy; however, this is governed by state law and not the U.S. Bankruptcy Code. In this situation, the debtor (you) would agree to designate an assignee who will take control of all the company property and assets. These are liquidated by the assignee, and creditor claims are satisfied with the liquidation proceeds according to the legal requirements.

This can be an alternative to Chapter 7 or chapter 13 bankruptcy; however, it is governed by state law, and it does not offer the automatic stay that a business bankruptcy provides. This option may be chosen instead of bankruptcy because it can involve lower administration costs and may not require as much time to complete.

4. Should I Voluntarily File A Chapter 7 Business Bankruptcy? What Happens Next, if I Do?

A chapter 7 business bankruptcy should only be used as a last resort if your business can not continue to operate because this involves the liquidation of all business assets and property and the dissolution of the company. Each case is different, with varying factors, but if your company is insolvent or close to it, then a chapter 7 petition may be the right solution. Once the bankruptcy petition is filed, then the automatic stay goes into effect, barring all creditors and collection activity until it can be reviewed by the bankruptcy court.

5. When is Chapter 11 Used for Business Bankruptcy? 

A chapter 11 business bankruptcy filing is normally used so that the financial affairs of the company can be restructured and reorganized. This will allow your business to continue operations while also satisfying creditors. Under the bankruptcy code, the debtor is exclusively allowed to file a detailed reorganization plan for the initial 120 day period after the bankruptcy petition is filed., and this can be extended significantly by the court. After this period expires, then creditors are allowed to file their own plan to be considered by the court as well. An attorney is required for any chapter 11 business bankruptcy case, whether this is in Jacksonville Florida or another area of the USA,

The Sacks and Sacks Law Firm Delivers Results

When it comes to your business bankruptcy and debt relief needs experience, makes an enormous difference in the outcome, and the Sacks and Sacks Law Firm has been delivering results for clients in Jacksonville, Florida, and the surrounding areas for more than two decades.

Bankruptcy may be the best option for your business, whether this is a chapter 7, chapter 11, or chapter 13 case. But there may also be alternative solutions available. Contact Sacks and Sacks today for an initial consultation to see what we can do for your business.  

Sources:

Carlson, Rosemary, “3 Types of Business Bankruptcy”, The Balance Small Business.com, January 18, 2020, https://www.thebalancesmb.com/what-is-business-bankruptcy-393017 . Accessed April 29 2020

https://www.starrandstarr.com/ . Accessed April 30 2020

Sardi, Carlos E., “Primer on Floridas Assignment for Benefit of Creditors: What Are They?” LinkedIn.com November 18, 2015, www.linkedin.com/pulse/primer-floridas-assignment-benefit-creditors-what-carlos-e-sardi/ . Accessed April 30 2020.