Everywhere you look these days, another business is filing either for Chapter 13 or Chapter 11 Bankruptcy protection. Emails have flooded inboxes to warn average consumers of the many store closings and the risk of purchasing gift cards from any merchant. In these trying economical conditions, it is most difficult to hope for the best, but plan for the worst. However, there is still hope and alternatives for small businesses.
How Can Chapter 11 Help?
Chapter 11 bankruptcy protection offers small business owners a lifeline without the risk of losing their personal assets. A chapter 11 filing reconsolidates all of the businesses assets and actually protects owners from all other forms of litigation. In fact, when the small business owner files for Chapter 11, an automatic stay is granted and a virtual umbrella is placed upon the owners head.
Specifics
According to the U.S. Courts Federal Judiciary Site, “The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition”[1]. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation.
As with any bankruptcy filing, there are advantages and disadvantages, however; the advantages in this case far outweigh the inevitable closure and the liquidation of assets of the owner. In certain cases, an owner can save time and money if they owe less than the government standard.
For instance, if an owner files for small business Chapter 11 protection and owes less than $2,000,000 (two million) dollars, then according to BankruptcyAction.com, “A separate hearing to approve the disclosure statement is not mandatory. It may be combined with the confirmation hearing; The appointment of a creditor's committee is not mandatory: The debtor has a shortened period of time (100 days from the date of the order for relief), within which only the debtor may file a plan; After the 100 day period expires any party in interest may file a plan however, all plans must be filed within 160 days from the date of the order for relief.”[2]
In layman’s terms, if a small business is in dire financial straits, filing for Chapter 11 gives them the freedom of keeping their business operational. Their creditors will also be assured that they will receive their overdue payments.
The stay of relief allows the small business to not be threatened by litigation and helps the owner to rebuild their income. When they file, they will only need one court confirmation hearing that deals with all of their outstanding debts. In essence, they will have reorganized their debts in a way that they can be paid.
Do Small Businesses Need a Bankruptcy Lawyer?
More and more small business owners are trying to salvage their business, their hard work, planning, and preparation by consulting with bankruptcy lawyers and filing for Chapter 11. Knowing the laws and filing for the right chapter protection has proved to be difficult for the average owner.
However, every state site now lists eager and able licensed attorneys that are more than willing to help these owners to protect their assets and help them to reconcile their finances and make good on the 'American Dream.' There are now workable options for owners who want to stay in business and pay off their debts.
Sources
Uscourts.gov,*"Bankruptcy Basics" (accessed March 1, 2010).
Bankruptcyaction.com, *"Chapter 11 Reorganization" (accessed March 1, 2010).
Korie Schmidt - I am a former High School and Middle School English Teacher that decided to stay at home after the birth of my second child. I am a ...
