San Diego bankruptcy lawyer

San Diego bankruptcy lawyer

San Diego bankruptcy lawyer

San Diego bankruptcy lawyer

San Diego bankruptcy lawyer
San Diego bankruptcy lawyer

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San Diego Chapter 11 Bankruptcy Attorney

San Diego Business Bankruptcy Attorney

Should I File For Bankruptcy or Shut the Business Down? or maybe both?

Filing for business bankruptcy of any kind is an extremely serious step. You need sound advice from an attentive San Diego business bankruptcy attorney. For that reason, you – and, if necessary, the company’s officers and directors – should weigh in on this decision. Collectively consider all relevant factors before you decide to attempt the next step(s). That step may be to try to salvage the business by filing for Chapter 11 protection. In the alternative,  that step may be to begin the process of shutting it down by filing a Chapter 7. Here are a few thoughts, but hardly an exhaustive list, on when to consider each option.

I Thought Chapter 11 was Just For Auto Makers and Airlines!

Not so. Smaller businesses also use Ch. 11. Individuals who have even more debt than the limit allowed in a Chapter 13 also use it. [Yes, the is a limit on how much a Chapter 13 filer can have going into a Chapter 13.] In general, businesses file for Chapter 11 to buy time, not shutter the company. The owner(s) have solid reasons to believe the company can recover. They expect it can eventually become a profit-making entity once again. There may have been a temporary setback. A strike, a spike in interest rates for a rate-sensitive enterprise, etc. Or, for example, the company may be launching a new product. And as a result, the owners may be confident that product has a good chance of capturing a great deal of new business for your company. Any of these may incite enough hope to file a Ch. 11 to forestall closure. This can buy you time. You remain the “debtor in possession.” That means you get to stay in operation while you launch and promote the product.

A Chapter 7 for business? Isn’t that for struggling individuals?

Not necessarily. The reasons for filing a small business bankruptcy as a Chapter 7 are many and varied.  Flowing from the Great Recession of 2008, many companies found their sales volumes shrunk dramatically. For some, their product lines were well on the way to being obsolete. For others, their particular market was congested with products that the company cannot compete with. Either indicates a need for a business bankruptcy attorney. You can settle things with creditors quickly and fairly simply by filing Chapter 7 . This of course assumes the company and, if applicable, you personally otherwise fit the parameters for a Ch. 7. Resigning the company to closure can feel like a genuine personal loss. As a result, many struggling business owners understandably wait late to confront company troubles. But closing shop can stop losses and defeat creditors.

Does a Chapter 7 Small Business Bankruptcy Work in the Same Way As It Does For An Individual?

Not exactly. A Chapter 7 bankruptcy filing for a business entity is defined as a “liquidation” bankruptcy. That means the company’s assets are valued by the trustee’s appraiser. Then, if it’s cost effective to sell them to pay the company’s debts, they are sold. Unlike individuals, the corporation / LLC / LLP does not get personal exemptions. That means ALL the corporation’s assets are fair game for the trustee. Thereafter, the creditors get paid on a pro rata basis. That means each gets a fraction of the whole “pie” in proportion to what fraction of the total debt the creditor held.

The Dilemma for the Small Business Owner

Owners of small business owners often find themselves in a dilemma not share by others. To set the context, most often their business has a single principal owner and a handful of employees. The business generates revenue in the hundreds of thousands up to several million dollars per year . As a result of the company’s woes, the owner(s) often must also decide whether to pursue a personal bankruptcy as well. Or maybe just a personal bankruptcy. Let me explain. For newer and smaller businesses, especially but not exclusively “mom and pop” shops,  the business is run by an owner/operator who is also very often president and CEO of the small corporation. These companies are seldom well-enough-established to access credit on their own. So, creditors nearly always require the principal  to personally guarantee the credit taken out by the company.

How the Company’s Debt Becomes the Owners’

For example, XYZ Painting, Inc. wants to establish a line of credit with a large painting supply company. John Jones, owner, must sign the credit application and promise that if XYZ doesn’t pay up, John Jones will. If the owner is struggling personally too, it may make more sense to file a personal Ch. 7, claim some of the assets of the corporation as belonging to the owner (after all, he / she is also usually the sole shareholder) and protect them as exempt. Then, the owner can dissolve the business and reopen under a different name. While this may sound a bit convoluted, for this owner convoluted is what works best.

How Can I Insulate Myself From the Company’s Debts?

Sometimes the owner can’t separate him/herself from the company’s debts. Often the owner of the company has personally guaranteed its debts. So, we have to look at how each debt is situated. By personally guaranteeing the company’s debt, that debt tangles with the owner’s personal debts. In turn, that can make a personal bankruptcy for the owner(s) appealing. Business has been good to – or had been  good to – some owners. By that I mean the owner has prospered personally. He / she / they accumulated property that can’t be protected and preserved to him / her in personal bankruptcy. That often makes personal bankruptcy for the owner(s) impractical or undesirable.

What if the Company’s Credit Is Its Own – Separate From Me?

When the company’s credit is its own, though, a Ch. 7 small business bankruptcy may be a smart solution. The Court sends creditors a notice that the company has filed. The trustee then examines the assets and determines what to sell (usually everything of significant value) and the creditors go away assuming that’s all they can get. Here’s a seldom-published fact about corporate / business bankruptcies. A corporation doesn’t get a “discharge” like an individual gets in a Ch. 7. But the net effect seems to be the same: the creditors stop looking to the company for payment. After all, the assets are liquidated. The alternative is for the owner to file a personal bankruptcy, cutting off his / her personal guarantee of the company’s debt.

How Do I Figure Out Which Solution is Best For Me and For My Business?

When making a decision about whether to file for bankruptcy or shut the company down, don’t rely just on your own hopes and perceptions. Seek the input of experts, including a business bankruptcy attorney who do not have a vested interest in your company one way or the other. Often outsiders can provide data and an sense of perspective that is hard to owners to achieve. It sounds counter-intuitive to spend money on experts when you’re struggling financially already. Think of it this way: the company ends up paying for expert information either before or after the bankruptcy is filed. Believe me, the Ch. 7 (or, for that matter, Ch. 11) trustee isn’t going to spend his / her own money on this part of the process. Only when you have weighed all the available information should you make your final decision. Paul is a business bankruptcy attorney who is listening to his clients to find solutions for their problems.

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