The frequent cycles of economic disruption in the American economy have pushed many local businesses past the breaking point. Declaring bankruptcy is the best way out in many cases.
An Edison small business bankruptcy lawyer can review your needs and explain your options if your business cannot get out from its debts. More than one chapter of bankruptcy might be available to you, depending on your circumstances. A local business bankruptcy attorney can work with you to select the one that will help you come out of this situation in the best possible position.
Individuals and business owners declare bankruptcy for many reasons. Although some people still stigmatize bankruptcy, it is an orderly method of getting out of debt while providing partial payment to creditors.
Bankruptcy often allows the debtor to keep most of their property. In some cases, a bankrupt business could continue operating while repositioning itself on a more solid financial footing. Importantly, filing for bankruptcy halts any direct contact from creditors and frees you to recalibrate your finances free of harassment and pressure.
There are pros and cons to each form of bankruptcy. An attorney in our Edison office can help a small business weight their bankruptcy alternatives.
Most small businesses choose to file for Chapter 11 bankruptcy. Filing under Chapter 11 allows you to continue running your enterprise while restructuring the business and positioning it for profitability. The plan of reorganization includes an arrangement to make monthly payments to creditors, usually in exchange for a discount on the debt.
In the past, small businesses with significant debt did not have the option of reorganizing under Chapter 11 bankruptcy protection. This form of bankruptcy was available only to businesses and sole proprietors with less than $2,750,000 in debt, eliminating many potential filers.
However, the Small Business Reorganization Act (SBRA), also known as Subchapter 5, now provides some small businesses an option to seek Chapter 11 protection.
Legal commentators had long lamented that Chapter 11’s high costs and complexities make it too difficult for small businesses to successfully reorganize.
Under the SBRA, a business qualifies to file a case under Subchapter 5 if its debts are in the amount of $2,725,625 or less. Section 1113 of the CARES Act increases the debt limit from $2,725,625 in debts to $7.5 million in debts. Therefore, businesses with debts of $7.5 million or less will now qualify to file cases under Subchapter 5. This change in the debt limit applies only to cases filed after the CARES Act becomes effective and is applicable for one year after the CARES Act becomes effective. After one year, the debt limit for cases under Subchapter 5 will return to $2,725,625 absent an extension by Congress. An extension was signed in 2022, allowing the $7.5 million threshold to continue until June 2024.
An attorney in our Edison office would help you craft a reasonable and realistic plan of reorganization to submit with your small business bankruptcy filing. Subchapter 5 prevents creditors from offering reorganization plans and allows a court to accept a plan even if unsecured creditors object to it.
If you wish to close your business, Chapter 7 bankruptcy offers an option, and is available to individuals, sole proprietors, and S-Corporations. When the debtor files for Chapter 7 bankruptcy, a Trustee assumes control of the small business and liquidates it, with the proceeds going to creditors. Debts that cannot be satisfied through liquidation are usually discharged.
A sole proprietor seeking Chapter 7 might have to pass a means test to be eligible for Chapter 7, depending on the nature of the debt. The means test applies to filers with primarily consumer debt; while a sole proprietor with mainly business debt would not need to pass a means test. One of our Edison attorneys could advise a small business on whether a means test would be necessary for them to declare bankruptcy.
In tough economic conditions, it is common for small businesses to declare bankruptcy if their commercial prospects do not improve. You are not alone in this situation. An Edison small business bankruptcy lawyer can meet with you and propose options to satisfy debtors and get you on better financial footing. Call Gillman, Bruton & Capone to set up a free case evaluation.
Justin Gillman was direct, honest and quite knowledgeable. His staff was always polite and helpful. Although the process of going bankrupt was something I felt would be painful and demeaning, Justin made the process quite the opposite. I could have gone to another Attorney but...
We would like to thank you and your staff in handling our case. The professionalism and smooth transaction exhibited by you and your firm made it easier on the hardship we were experiencing. You made it possible for our lives to go on and we’re...
My husband and I have been clients of Justin for approximately 9 years. He has always given us the best possible advice, took time to explain everything in a way that was clearly understandable to non professionals and never, never failed to return my calls...
The Best! Marc is my bankruptcy and real estate attorney. Has helped my family through a lot of tough times. His competence and integrity are unmatched. Have recommended several people to him.