Our bankruptcy attorneys are experienced at helping businesses in financial difficulty. While we try to help New Jersey businesses regain their footing by negotiating with creditors or engaging in transactions which help their financial positions, sometimes bankruptcy is the best option. A Chapter 11 reorganization may give businesses the breathing space and restructuring of debts they need to continue operations successfully and profitably. A Chapter 7 liquidation will help businesses which can no longer meet their obligations peacefully wind down their businesses in an orderly fashion without harassment from creditors.
Perhaps no question is more difficult for a business owner than “Should I file bankruptcy?” Indeed, in a small business, the business’s finances may be closely intertwined with the owner’s financial life. Even good businesses find themselves in this situation. Employees embezzle money, controllers don’t pay the company’s taxes, there is a traffic accident with significant injuries and the insurance company denies coverage, the business’s largest customer goes out of business without paying its large bill.
Our bankruptcy lawyers are uniquely qualified and experienced to answer these questions. We have been counseling businesses on legal, financial, operational and business matters for many years. Indeed, Frank Nardi is both an attorney and a certified public accountant, and worked for the United States Trustee in Manhattan; he has been counseling and representing businesses in distress for decades. We have also represented many companies in both business and financial litigation. All this makes us uniquely qualified to counsel businesses on the difficult decision of whether or not to file for bankruptcy protection.Business Bankruptcy
There are two main types of bankruptcies available to businesses: Chapter 7 liquidation and Chapter 11 reorganization. Chapter 7 is used when the company is unable to meet its obligations and is going out of business. Chapter 11 is used when the company is facing financial difficulties, but can continue with a restructuring and lessening of its debt.
The court will appoint a trustee to oversee the case. The trustee’s job is to ensure that assets which are not exempt are given to creditors, or sold and their proceeds given to creditors. The trustee also has “avoiding powers,” and may set aside transfers to “insiders” made to avoid bankruptcy, or within a short time before bankruptcy. Sometimes, in rare circumstances, the judge can order the trustee to actually take control away from the owners and management, and take the businesses’ operation over.
Business bankruptcies are normally filed voluntarily, but under certain circumstances, creditors can force the company into bankruptcy.Chapter 7 Liquidation
Chapter 7 is a process under by the federal Bankruptcy Code to liquidate businesses.
Once the Chapter 7 case is filed, federal law imposes a “stay” of all collection efforts. Lawsuits are put on hold, repossession and foreclosure actions stop, harassing calls and letters cease. This allows for an orderly winding down of the business.
The advantages to filing Chapter 7 are that the trustee will administer the dissolution of the company and payment of creditors, and will ensure that creditors are paid in the correct priority; this eliminates the claim that the officers did not pay debtors properly. It also informs the creditors that there are no more assets, and thus suits after the bankruptcy would be pointless.Chapter 11 Reorganization
Chapter 11 is known as "reorganization." The goal of Chapter 11 to rehabilitate the business by reorganizing its expenses and debts, usually significantly reducing the business’s debt. The idea behind Chapter 11 is that it is better for a business to survive than liquidate. Like Chapter 7, when a Chapter 11 petition is filed, the bankruptcy court imposes an automatic stay of all the business’s creditors’ collection efforts and lawsuits.
In a Chapter 11, the business will propose a plan to the bankruptcy court which allows it to reduce and restructure its debt. However, the creditors get to vote on it, and can reject it. This makes Chapter 11 the most complex bankruptcy procedure.
However, it is often worth the effort. Chapter 11 has many advantages, including:
- It gives time and breathing space to get finances in order for the business to regain its footing and reemerge profitable.
- It allows the business to continue to operate in the normal course of its business.
- It allows a business to reduce payments before the reorganization plan is voted upon.
- It slows down the foreclosure process long enough to sell or develop real estate through a reorganization, rather than lose it to a sheriff’s sale.
- It allows a business to propose a reorganization plan to reduce and reschedule debts, and reduce operating expenses to reasonable levels.
- In Chapter 11, a business can choose to surrender or keep secured property.
- It provides the possibility of terminating leases in unprofitable locations.
- In Chapter 11 it is sometimes possible to renegotiate or eliminate union contracts.
- It allows leases to be renegotiated (although this is complex, leases are automatically deemed rejected if not renewed within 60 days)
After the plan is approved, it becomes a new contract with the business’s creditors. The business’s pre-filing debts are discharged, and the reorganization plan takes their place.Personal Obligations
One thing Chapter 7 cannot do is discharge personal debts. Therefore, if a Chapter 7 will leave debts that an owner or investor has personally guaranteed, the guarantees will not be extinguished. Sometimes, therefore, Chapter 7 should not be filed. If there is no choice, the people who gave the guarantees will themselves need to look at filing for bankruptcy protection.
It is also important to remember that if the business is not a corporation, limited liability company, or legally formed limited liability partnership, for example if it is an unincorporated sole proprietorship, there is no wall between the business debts and the owner, and the owner will need to look to personal bankruptcy for protection.McLaughlin & Nardi’s New Jersey Business Bankruptcy Attorneys Can Help
Our New Jersey business bankruptcy attorneys are experienced at helping businesses which are struggling with debt. Please e-mail us or call one of our experienced New Jersey business bankruptcy lawyers at 973-890-0004 to obtain assistance.