The affect a business bankruptcy plays on a business owner is generally determined on how the business was originally structured. When a business is formed there are several different categories it can fall into, including a sole proprietorship, corporation, or a limited liability company. Based on what type of structure a business falls into is what determines how a business bankruptcy will affect the business owner.

Bankruptcy on a Sole Proprietorship

When a business owner starts their own business under a sole proprietorship structure then the owner is personally liable for all business debts that are incurred. Business owners that own this type of company do endure damage to their credit report if they file for bankruptcy. To put it simple, in the eyes of the court the business owner and their personal debt and business debt are one in the same. The best type of bankruptcy to file when an owner files for one on a sole proprietorship company is a Chapter 13; this type allows the business owner to reorganize their business and pay off debts over a certain period of years. If they file a Chapter 7 bankruptcy then their home, automobile and other personal assets can be sold to pay for business debts incurred.

Bankruptcy on a Corporation or Limited Liability Company

When a business owner opens a business under a corporation structure or a limited liability company structure then their personal assets cannot be affected during a business bankruptcy. In the eyes of the court the business owner and their business are not considered one entity. Due to the fact that business owners cannot be held personally liable during a business bankruptcy they often open a business under a limited liability company structure.

Employee Wages During a Bankruptcy

Anytime a business owner files a business bankruptcy they must pay any wages that are owed to business employees; this applies to any type of business structure. If the business owner fails to pay employees their earned wages then the business owner can be held personally liable.

What Happens To A Bankrupt Business?

All businesses have the option to file for bankruptcy if they fall too heavily into debt and this is known as a Chapter 11 bankruptcy. This differs slightly from personal bankruptcy in a few ways. Instead of clearing debt, Chapter 11 simply restructures debt and may bring in outside consultants to change business practices. The debt may lowered, but is rarely completely removed after filing for Chapter 11. Courts can mandate a wide array of rules on the bankrupt company after filing. This can include quarterly updates given to the lenders, downsizing of employees, and the selling of company properties and holdings.

All of these factors depend on the type of debt as well. Certain financial responsibilities will remain no matter the circumstances. An example of this would be an unpaid payroll for employees which must be paid no matter the state of the company or the owner.

When Can Lenders Come After LLC Owners?

The nature of limited liability companies dictates that owners are not responsible for any debt incurred on behalf of the company, but there are a handful of exemptions from this rule. During loan processes, many banks and other firms will require owners to assume partial responsibility or co-sign for the loans. In this case, these debts will transfer over to the owner who may need to file for personal bankruptcy. For companies with this problem, many times the LLC will not only be dissolved, but creditors may go directly after all owners. This could result in the seizing of all personal properties or the garnishing of future wages.

A much rarer example in which the owner would be responsible for their LLC’s debt would be if the court deems them personally responsible for negligence in regard to their businesses debt. While these cases are rare, they can happen due to extreme financial carelessness.

The complicated nature of bankruptcy laws and limited liability companies make it necessary to contact a bankruptcy or business lawyer to discuss all options available as exact laws change from state to state.

What many small business owners fail to understand is that bankruptcy – while ugly and horrifying at first, may actually be a blessing in disguise. If used correctly, then you may actually maneuver yourself into a situation where your small business actually comes out on top and becomes relevant again.

So what are your options when faced with bankruptcy? Well, every small business is different, but there are basically three main options when filing for bankruptcy.

1. Chapter 11: This is the bankruptcy that is used by most businesses during the process. The object of chapter 11 bankruptcy is to reorganize and liquidate. By doing this you can try to restructure the small business debts and try to come out on top. Small business owners who choose chapter 11 have had success, but they also have to prepare themselves for an expensive and very time-consuming process.

2. Chapter 7: This type of bankruptcy initially signals the end to your small business. You are basically saying that you don’t want – or can’t, restructure or liquidate anything. While this is a good way to get you free and clear of small business debt, there is a risk involved, as some personal items may be up for grabs for creditors. Sometimes it may be worth the risk though, because when it’s over you don’t owe anything.

3. Chapter 13: This type of bankruptcy option is not used as often, but it can still be very helpful if used correctly. To file for chapter 13 you have to be an individual that is operating a business that is unincorporated. You also have to have a steady source of income. If you file chapter 13, then you allow the court to set-up a 3-year or 5-year plan that will allow you to pay down as much debt as possible over that time.

Bankruptcy doesn’t have to be the end of the world for you or your small business. As a matter of fact, if used correctly, you may find yourself in a much better position than you were before.

In these difficult economic times, many businesses are filing for bankruptcy in order to consolidate resources and reduce or eliminate debt. Since declaring bankruptcy can be a difficult process, it makes sense to consult a business bankruptcy lawyer that specializes in debtor’s counsel. A bankruptcy lawyer helps the company to determine which type of bankruptcy would be the most useful, determine which debts can be discharged, notify them of how both state and federal bankruptcy laws apply to their situation, and prepare and file the bankruptcy petition on their behalf.

Bankruptcy Types

Business bankruptcy commonly occurs in one of two types: Chapter 7 and Chapter 11. Chapter 7 bankruptcy is the most common form of bankruptcy to be filed, although the filing process and forms involved can be quite complex. Under Chapter 7 bankruptcy, unsecured debts can be discharged, freeing the company of the obligation to pay. Creditors are unable to collect on debts unless expressly permitted by the court, and any assets of the company not specifically exempt are liquidated in order to repay debts. Chapter 11 bankruptcy seeks to restructure debts under a plan that the creditors will approve of, and the business can continue to operate, unlike under Chapter 7, where it is dissolved. The filing process for either type of bankruptcy is quite complex, especially after changes made to federal law in 2005, and depending on a company’s financial situation, one type or the other may be preferable, so it is important that companies consult a bankruptcy attorney to find out which option will yield the most optimal results.

Other Bankruptcy Issues

While state law does not supersede federal law when it comes to bankruptcy, there are cases where state law further clarifies areas of bankruptcy proceedings that federal law does not cover. Of particular importance is which types of debts may or may not be discharged. Certain debts, such as federal taxes, or debts incurred after filing for bankruptcy, can never be discharged, but other types of non-exempt debt vary by state. Assets exempt from liquidation also vary by state. Only by consulting a business bankruptcy attorney can a company determine what they can expect after filing for bankruptcy.

In a chapter seven bankruptcy, there is a high probability that you will lose property. In this type of bankruptcy, assets that you own will be sold, or claimed by your creditors through liens, or similar claims. There is a list of items debtors may keep, so take a careful inventory of your possessions, and make sure you understand what you are entitled to within your state. You may be able to use the federal guidelines if your state’s list is not appropriate in your case. A bankruptcy attorney will have a good idea which guidelines will be best for you.

For some people, however, they may be underwater on a mortgage, or they may own assets that act as a drain on resources, rather than wealth. For these people, a Chapter 7 can unburden them and allow them a fresh start.

This does come with a price. Filing for bankruptcy will affect your credit for seven years or more, depending on your state. You are also required by law to tell any employers or potential creditors (if they ask you) about your bankruptcy. This may affect your ability to apply for a car loan, buy a home, or get a job, so that that into consideration. There are also fees associated with bankruptcy, and plenty of paperwork. Ensure that you have a qualified bankruptcy lawyer to assist you.

Here is a short list of items you will likely have to relinquish in chapter seven bankruptcies.

· Vehicles (you may be allowed one)

· Investments, bonds, CD’s, and other monetary assets

· Collectibles

· Items with intrinsic value, like family heirlooms.

Depending on your case, you may be allowed to keep:

· Tools of your profession, such as computers (if you telecommute)

· Clothing, basic furniture, items needed for everyday living

· Federal benefits from SSDI, VA, or Medicare or Medicaid

· Retirement plans

These lists are non exhaustive, so speak with a local bankruptcy attorney before deciding on the type of bankruptcy you will choose. Each individual case is different.

Bankruptcy can be a difficult and painful process, but with the help of a strong Bankruptcy lawyer in New York, you can sort through the questions surrounding the issue. Each situation will be different, and the amount and type of property you have may determine whether you file a Chapter 7 or a Chapter 13 bankruptcy.

The largest difference in the types of bankruptcies available to individuals is the way debt is handled. In a Chapter 7, burdensome assets are sold off to pay creditors. In a Chapter 13, the debtor may keep all assets, but must create a payment schedule to pay back all debt. A qualified New York Bankruptcy attorney can help you decide which option will best for you. If you have a home or special family heirlooms, a Chapter 7 bankruptcy may not be in your best interests.

How to Qualify for a Discharge

Anyone hope to receive a Chapter 7 discharge, must first qualify by meeting several criteria.

· You can only request a discharge one time in any given nine year period

· BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) requires that all individuals who apply for a discharge must successfully participate and complete a money management class.

· Your record must be error free and exhibit signs of honesty. If you have engaged in fraudulent money or security practices, previously ignored court orders or have notably bad record keeping, a court is unlikely to grant your request for a discharge.

After You Are Granted A Discharge

Once your discharge is approved, you will be offered protection in several forms.

You cannot be sued for any of the debts covered by your filing. Other legal actions against must cease as well.

Your creditors must immediately stop contacting your regarding your debts. This includes both written and verbal communications.

Unfortunately, your discharge may not completely wipe away debts. This is especially true in the case of guaranteed loans. If you have a co-signer or guarantor on a loan, your discharge may make you not liable for the loan, but your co-signer is not offered the same protection and your creditors may go after them to collect the loan.

Liens are not covered by discharges. Carefully review your finances and note any liens. Consider this: if you took out a $3000 loan and used a car worth $1000.00 to secure it, you can claim the loan on your discharge, but the item you used to secure the loan, in this case the car, is not covered by the loan. Once your discharge is granted, the loan, less the $1000.00 secured amount, will be cleared; however, the security, the car will still be liable for repossession.

Revocation of Discharge

No discharge is set in stone. There are several reasons why a court may choose to revoke a previously granted discharge – most involve dishonest behavior of the debtor.

· A creditor or trustee may request the discharge be revoked

· If the debtor provided fraudulent or misleading information to the auditor in an attempt to sway the decisions, a revocation may be granted.

· If the debtor failed to provide information on all of their assets to the trustee, their discharge may be revoked

A common Bankruptcy mistake is to cash out retirement funds, like IRA’s or 401(k) plans. In most cases of bankruptcy, retirement assets are protected. If you cash out these funds, not only will you be subject to taxes and penalties on the money, but they will no longer be legally exempt, and you may lose them entirely.

Retirement funds may be exempt from bankruptcy liquidations

A bankruptcy doesn’t have to put your financial future in jeopardy. Even if you are forced to liquidate other monetary assets, a qualified bankruptcy attorney can tell you if your retirement savings are safe. It’s important that you understand your rights when declaring bankruptcy in New York.

Avoid the debt management trap

Many debt management companies profit off debtors by misleading them about the difficulty of handling debt, and some may even neglect to pay your structured payments, and leave you in a worse situation than you were when you started. Always employ legal counsel when working with debt management companies, and avoid falling into this big pitfall.

Protect yourself from predatory companies like these by working with experienced bankruptcy attorneys during each step of the bankruptcy process. You might need help liquidating assets and structuring payments, but legal professionals will have your best interests at heart because they are invested in making sure that you succeed.

What transfers are legal, and which are fraudulent?

Some transfers in a bankruptcy case are legal, such in the case of normal business transactions. Many, however, are considered fraudulent. These may include trying to hide assets by giving them to friends or family, or by selling items at a much lower cost to people close to you. This activity is illegal, and it’s a common temptation that gets many people who are filing bankruptcy into trouble.

Work closely with your bankruptcy lawyer during the process to ensure that your transfers are legal. If you are accused of bankruptcy fraud, you should find legal representation immediately.

Avoiding credit scams

Predatory lenders, credit scams, banks, and lending agencies may be causing you many of your financial woes. Work with your attorney to ensure that they are using fair practices while you work through the bankruptcy process.

Chapter 13 and Chapter 11 bankruptcy have certain key similarities that can cause confusion for anyone who doesn’t specialize in bankruptcy.

Who Can File for Chapter 11 and Chapter 13 Bankruptcy?

Chapter 11 bankruptcy is available for businesses and individuals with a very large amount of debts and income.  Filings are available for almost all individuals as well as sole proprietorships; however there are debt/income limits for eligibility. These limits change each year.

Chapter 11 Bankruptcy- Creditors Vote

In both Chapter 11 and Chapter 13 bankruptcy, the debtor and the debtor’s lawyer or law firm create a plan to reorganize and consolidate the debt. In Chapter 13 bankruptcy, the creditors accept the plan assuming it meets
certain legal standards. In Chapter 11 Bankruptcy, the creditors vote to determine whether they will pass or reject the plan.

Under Chapter 11, if the creditors turn down the plan, the debtor can come up with a new plan. The judge may force the creditors to accept the debtor’s plan or the negotiations may simply fail. If negotiations fail, the business will either have to file for business Chapter 7 bankruptcy, or, the case may be dismissed.

To learn more about bankruptcy in the Austin, Georgetown, Leander, or Round Rock area, you can schedule an appointment for a free initial consultation with one of the members of our legal team. Just call 512-200-4351 or
contact our offices online.

If you are falling behind on payments for a car, truck, boat, motorcycle or other high-value piece of property, you may be facing repossession. Your creditors can repossess your property at any time, and once they do, you may have no way of getting it back. You should act quickly to avoid repossession.

Put an Instant Halt to Repossession: The Automatic Stay

When you file for bankruptcy, the courts will issue an ”automatic stay.” The automatic stay is an order that forbids your creditors from contacting you or taking any actions toward collections, including repossession. Once you file for bankruptcy, the automatic stay means your creditors will stop calling you for payments. The automatic stay may also allow you time to catch up the back payments.

How Chapter 13 Bankruptcy Stops Repossession

Chapter 13 bankruptcy will allow you time so that you can catch up on back payments called “arrears.” It will also put an automatic stay on repossession and other attempts at collection, giving you necessary time to catch up on payments.

Most arrears will be paid towards secured debt — that is, debt on assets that you own. Most unsecured debts can be discharged through Chapter 13 bankruptcy.

To learn more about bankruptcy in the Austin, Georgetown, Leander, or Round Rock area, you can schedule an appointment for a free initial consultation with one of the members of our legal team. Just call 512-200-4351 or
contact our offices online.

In some cases, bankruptcy can be used to help prevent foreclosure. Other times, it cannot. If you are thinking about bankruptcy and fear that your home may be in danger of foreclosure, call our legal team now for assistance.

What if You Receive a Foreclosure Notice?

If you have received a foreclosure Summons Complaint alerting you that your house is in foreclosure, you may be able to stop it if you act swiftly. Although you are not allowed to restructure the terms of your mortgage, you can ask the bank for leniency for time to catch up on your back payments, also known as “arrears.”

The bank would prefer not to foreclose on your home — especially in today’s economy — but it needs a reason to believe you will make your mortgage payments. If all your other debts are discharged or consolidated through
bankruptcy, then the bank has a reason to believe you will be able to make the payments.

Foreclosure in Chapter 7 Bankruptcy

In Chapter 7 consumer bankruptcy, most of your unsecured debts are forgiven. But, a mortgage is a secured debt. While the underlying debt on a house or real property is discharged or forgiven the lien remains on the property and can still be foreclosed by the bank or lending institution. Foreclosure allows the bank or lending institution to take back title to the property. If the house or real property is surrendered in a chapter 7 bankruptcy all your remaining debt owed on the mortgage will be discharged even if the value of the house is less than the value of the debt.

Foreclosure in Chapter 13 Bankruptcy

If you are in foreclosure, filing for Chapter 13 bankruptcy may help you catch up on your back payments and reinstate your mortgage. Even if you have already been served a Summons Complaint, you can file for Chapter 13 bankruptcy to stop foreclosure at any time before the court auction to sell your house takes place.

In these times more than any other since the Great Depression, Americans are being turned out of their homes. Most foreclosures are the result of economic struggles and predatory lending — not fiscal irresponsibility. If you are facing foreclosure and bankruptcy, we can help you through it.

To learn more about bankruptcy in the Austin, Georgetown, Leander, or Round Rock area, you can schedule an appointment for a free initial consultation with one of the members of our legal team. Just call 512-200-4351 or or contact our offices online.