If your business is struggling to the point where you cannot pay your debts and need to reorganize them to continue operating or else shut the business down, it may be beneficial to consider bankruptcy, no matter what the size of the company or how it is structured.
Businesses generally file for Chapter 11 bankruptcy because it allows them to reorganize their debt and pay it down with future earnings since the business continues to operate. Many companies have emerged from bankruptcy, rebuilt, and become profitable. If your entity is a limited liability or corporation with assets and a plan for future growth, speak with one of our knowledgeable bankruptcy attorneys. This can be a complicated process and you should consult with a Hackensack business bankruptcy lawyer before choosing the best path.
Because sole proprietorships are not recognized as separate from their single owner, you might need to file Chapter 7 or Chapter 13 personal bankruptcy, which involves your business and personal assets.
General partners in New Jersey limited partnerships (LP) will be held responsible for the partnership’s debts in bankruptcy. Limited partners will only be responsible for the debt they signed as a personally guarantee.
Limited liability partnerships (LLPs) are structured so the limited partners are only liable for their capital contributions and what they personally guaranteed. Talk to a business bankruptcy attorney servicing the Hackensack area if you are considering bankruptcy for a sole proprietorship or partnership.
A Chapter 7 business bankruptcy should only be reserved for small businesses with no chance of recovering under crushing debt. The upside of Chapter 7 is that creditors can no longer contact companies that file for bankruptcy, there is no means test to qualify, and owners are generally not responsible for corporate or limited liability company debt. The downside is you cannot emerge from it and salvage the business. All the business’s assets are used to pay creditors and the business ceases to exist at the end of the process.
Generally, during a Chapter 11 business bankruptcy, the business continues operating with its management controlling its operations, called debtor in possession (DIP). Companies with viable assets may even qualify for a DIP loan to infuse it with operating cash during the Chapter 11 process.
Working with a U.S. Trustee and a creditors’ committee, your company’s Hackensack business bankruptcy attorney will be involved in reassessing the company’s value and negotiating a plan of reorganization. The creditors’ committee represents unsecured creditors who will also work separately with secured creditors to protect their interests while considering the company’s future profitability.
Creditors can sometimes force a company into bankruptcy if assets are being squandered and the company is performing poorly; or into liquidation if the Chapter 11 bankruptcy is not going well. In a high-profile example, creditors forced Toys R Us to liquidate its assets after the company filed for bankruptcy with $5 billion in debt and lackluster sales during reorganization.
A plan of reorganization can include restructuring your company, such as merging with or being acquired by another company or selling off a subsidiary. Specific assets may be sold, the business model could be adjusted, and employees may be laid off. The company may also seek new investment capital through a DIP loan or a private placement seeking new stockholders.
Filing for bankruptcy protection for your business is a valid tool for reducing or managing your debt while continuing to operate and grow your business. When you are a sole proprietor or a general partner, your personal assets could be involved, although they would not be under Chapter 11 bankruptcy.
With an experienced advocate to guide you, it can be the solution to your business’s mounting debt and a way to potentially keep your doors open. A Hackensack business bankruptcy lawyer is ready to assist, so call us for a free case evaluation.