Trying to run your own business is always challenging. Even when the business appears successful, external forces sometimes create significant financial pressure.

When your business is struggling with more debt than it can service, it may be worth it to consult with one of our experienced bankruptcy attorneys about how to save it. A business bankruptcy lawyer can explore the legal and business implications of filing for bankruptcy in Cranford and help you decide whether it makes sense to pursue it.

How Bankruptcy Could Help Your Business

A business with an excessive debt burden cannot expand, create, or innovate in the way a more profitable enterprise might. Restructuring debt allows the company to continue operations in many cases, and protects the corporate shareholders’ personal assets, although their investments in the business may still be at risk. When a partnership or sole proprietorship in Cranford files for bankruptcy, the owners’ personal assets may be used to pay the business’ creditors but a skilled attorney could limit the risk.

A bankruptcy filing stays collection actions from creditors. Depending on the chapter of bankruptcy your business chooses, business owners have substantial input into how, when, and how much the creditors are paid. Bankruptcy is a way for business owners to exert some control in what would otherwise have been an uncontrollable situation.

Many businesses accumulate state or federal tax debt. This tax debt is not dischargeable through bankruptcy, but a Chapter 11 filing gives the business owners the opportunity to restructure their tax debt as well.

Choosing the Correct Chapter of Bankruptcy for Your Business

Most larger businesses and those with higher debt choose either Chapter 11 or Chapter 7 when seeking bankruptcy protection. Each of the aforementioned Chapters serve different purposes and our business bankruptcy attorney serving the Cranford area can explain which option is appropriate in a specific case.

Chapter 11

Businesses often use a Chapter 11 bankruptcy to get temporary debt relief while they restructure their businesses to be more profitable. The process can be time-consuming and complex, but it offers the company an opportunity to emerge intact and well-positioned for growth and profitability.

You must prepare a plan of reorganization that pays unsecured creditors, and makes changes to the business to decrease expenses and increase profitability. The plan could include restructuring the workforce, eliminating some lines of business, or other changes to operations. Our attorney servicing the Cranford area can work with company ownership and management to create a workable plan that creditors will accept.

Chapter 7

A commercial entity that looks to cease operation might select a Chapter 7 business bankruptcy. Once the owner has filed for Chapter 7 bankruptcy protection, they wind down operations and the trustee in the case disposes of the business assets. These assets are directed toward the business’ creditors. We can work with you to determine if you could qualify for a Chapter 11 filing first before considering liquidation.

Bankruptcy Reorganization for Small Businesses

Smaller businesses that intend to maintain operations might find a Chapter 11 bankruptcy to be unwieldy and expensive. A streamlined bankruptcy procedure for small businesses is available, called Subchapter V.

Starting in February 2020, small businesses have the option to file a Subchapter V bankruptcy.  Subchapter V bankruptcy is available to businesses and sole proprietorships with debts totaling no more than $7,500,000 (subject to change by Congress). You must file a plan of reorganization describing how it will maintain revenues and pay creditors. Secured creditors must receive at least the value of their collateral but the plan can pay unsecured creditors less than they are owed.

When a lawyer files a petition for a Subchapter V bankruptcy, the business has 90 days to prepare a restructuring plan and present it to creditors. Developing the plan of reorganization could require substantial time, so consulting an attorney well before the desired filing date is beneficial.

Consult an Attorney When You Are Considering a Business Bankruptcy in Cranford

Some people feel that their business has failed if it must seek bankruptcy protection but that is inaccurate. Bankruptcy is a tool a business can use to operate through temporary downturns or overextensions, and emerge in a more robust position.

Business bankruptcies are complex and require careful analysis. Schedule a free case review from Gillman, Bruton & Capone and learn how our business bankruptcy lawyer can put you and your Cranford business in a better financial position.