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Bankruptcy for small business

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Business BankruptcySite Producer2022-09-14T07:52:52-07:00

FREE Bankruptcy Advice

The following section will cover small business bankruptcy. However, if you want details regarding personal bankruptcy, please see “bankruptcy for an individual”.

I understand your apprehension, anger, and worry about what lies ahead. Even though you spent years building your company, everything is now in turmoil. You are concerned that your creditors will seize control of your company and that you won’t be able to pay your taxes or your employees. If you watch the videos and complete the questionnaire, I will try my hardest to provide you the information you need in order to make informed decisions on your company’s specific situation, and your goals for the company.

If bankruptcy is not the best option, we will discuss other options.

– Diane L. Drain

Small Business FAQs

Corporations and partnerships are legal entities separate from their shareholders or partners. They can file Chapter 7 or Chapter 11 bankruptcy.

Proprietorship are just an extension of the owner: they can’t file bankruptcy alone.  Instead the proprietor must file bankruptcy, since the assets and the liabilities of the business are really just one form of assets of the proprietor. The individual owner may file Chapter 7, Chapter 11 or Chapter 13 (if the debt limits are met).

In a partnership’s Chapter 7 case, the trustee can sue the general partners of the partnership if the partnership’s assets are insufficient to pay all claims for the amount by which the partnership assets fall short of partnership debts. 11 U.S.C. 723. As a result, partners may be facing a suit by a trustee suing for the benefit of all creditors of the partnership.

To answer this question, you have to know what has caused the problems the business now faces and what are the prospects for change:

  • Reorganization can’t create a market; increase gross revenue, or make up for a poor fit between the skills available and the skills required to run the business.
  • Reorganization could free up cash from servicing the old debt to permit current operations; permit rejection of leases or contracts that are no longer advantageous (an expensive facility lease or improvident equipment purchase); or prevent the loss of vital assets or cash to creditor collection actions.

In between Chapter 7 liquidation and reorganization, a Chapter 13 (available to only people, not entities) or Chapter 11 (available to both entities and people) could provide a breathing space for the owners to sell the business as a going concern or or its assets in something other than a fire sale. The resulting proceeds could pay taxes or unpaid salaries; sale of the business could provide ongoing jobs for the work force under new ownership. The bankruptcy could then be converted to Chapter 7 or dismissed if bankruptcy protection is no longer needed. The court will probably condition dismissal of the case on payment to creditors of the sale proceeds.

The company’s owners and officers need to know when business isn’t going well. When management is evaluating survival strategies and contingencies for closing, consider the following:

  • How much of the business debt is secured? The division of debt between secured and unsecured guides what reorganization can do for the business.
  • Is this debt secured? Hidden traps in proceeds from collateral Misuse of the the proceeds of a secured creditor’s collateral can create a non dischargeable debt for the individuals involved.
  • Trust fund taxes are not dischargeable: When an employer deducts taxes and social security contributions from employee wages, the employer becomes a fiduciary for that money which belongs to the employee. “Loaning” the business the money due Uncle Sam from employees’ paychecks makes the responsible corporate officers personally liable for the trust fund taxes not paid to the taxing authority. Sales taxes are trust fund taxes in some jurisdictions, as well.
  • Payments to insiders on old debts may be recoverable as preferential payments once the bankruptcy is filed. Repayments to relatives and business decision makers on their claims against the debtor can be recovered by the bankruptcy trustee under certain circumstances.

Bankruptcy reorganization in Chapter 11 requires significant time on the part of the owners and managers to comply with the requirements of the bankruptcy system. This option is far from inexpensive.

The business must have a very viable future in order to seek this remedy. Most reorganizations fail, usually for lack of the ability to stick to a budget, or to control the events and costs that forced the company into a bankruptcy. Many times the Debtor’s owner has no real idea how much time and effort goes into a successful chapter 11.

The value of the bankruptcy for the company and its owners/shareholders is that, in exchange for the protection of the automatic stay and other bankruptcy protections, the debtor provides full disclosure of its financial condition to creditors and the court, both at the beginning of the case and on a monthly basis in a form of a income and expense statement, and operates as a fiduciary for its creditors while the bankruptcy is ongoing. Meaning that the owner of the company must make decisions for the benefit of the creditors, not for his own benefit.

It might not be worthwhile to reorganize businesses that have little capital requirements, minimal assets, or are essentially just extensions of the owner’s abilities and personality. In either case, the proprietors could be better suited liquidating the company and starting again with a new company.

To begin with, our clients will tell you that my fees are very reasonable, often lower than those of “mass production” firms. Our initial consultation is completely free of charge (you can afford that).

Every circumstance is different. If we applied the same fee to everyone, some people would pay too much while others would pay too little. Any law firm that provides a fee estimate without first learning the specifics of your case has made the decision to limit services to complex cases (and not tell the client) while overcharging those with straightforward cases (again, not tell the client). I’ll let you know if I can help you and how much it will cost after our free consultation.

A business can file for bankruptcy in two ways. A chapter 7 liquidation or a chapter 11 reorganization

I specialize in the liquidation of small businesses. But don’t worry, that doesn’t mean you can’t start a new business (there are rules). If you want to keep operating the company, and have the ability to do so, I will refer you to some great chapter 11 attorneys.

But lawyers are so expensive!!

We are all concerned about the cost of hiring a professional. I understand that price is important, but receiving competent advice is even more important. Otherwise, you will have a bad experience and waste a lot of money trying to fix mistakes caused by bad advice or poor planning. “It costs more to fix a problem than it does to do it right the first time,” as the saying goes. I recommend reading “Hiring a cheap lawyer is very expensive,” .

Before I can give you an accurate cost for our help and support, I need to learn more about your specific situation.

The information you provide will assist me in identifying any problems and explaining how to best resolve those problems (some that you never realized would be problems). It is possible that bankruptcy is not an option, or that it is only one of several options. This type of assessment and planning, like good medical treatment, takes time and experience.

Why choose our firm – because we have never been, and will never be, a bankruptcy “mill” comprised of untrained or uninterested attorneys. YOU DESERVE OF BETTER!!

I’ve been practicing law since 1985, and the most damaging misconception I’ve encountered is that bankruptcy is a “one size fits all” scenario. The truth is that one person’s financial and living circumstances are exceedingly unlikely to be identical to another. My goal is to provide legal advice that is tailored to your specific situation, requirements, and desires, all at a reasonable cost.

See what our fantastic clients had to say about how we helped them get a fresh start.

There are 12 steps to filing a business Chapter 7 Bankruptcy. To see all the steps involved in this process, click here.

The U.S. Small Business Administration (SBA) is a great place to go for help with starting, running, and developing a small business. With expert marketing and management advice, you’ll be able to sell and manage your company like a pro.

Helping out with bankruptcy

FREE Consultation Process

Please complete the following prior to our FREE Bankruptcy consultation in order for me to really help you:

Step 1.

Watch 9 short videos from the “Bankruptcy Court”  These are generic videos.

Step 2.

General Business Questionnaire Form

Step 3.

Did you guarantee any company debts?  If so, please complete the questionnaire an individual, in addition to the business questionnaire.

If you are responsible for any of the company debts (co-signed a lease, credit card or other obligation)?  If so, you should fill out the personal bankruptcy questionnaire (click here or the button to the right).  That way you and I can have a broader discussion about the interaction of your personal obligations to pay company debts.

Step 4.

Review flow chart of Chapter 7 business process

Step 5.

Schedule a FREE 30 to 40 minute phone call with Diane 602-246-7106

Post-consultation Step

Next steps AFTER our phone consultation. Moving toward filing your bankruptcy.

Clients from all across Arizona have put their trust in us

You were brilliant!

"You were brilliant!!" G. I will never forget what you’ve done for me. You were brilliant!Thank you.

Thanks for your professional and compassionate treatment

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saves me a lot of time and money

Saves me a lot of time and money. M.M. Extremely knowledgeable attorney. Very helpful and patient, help me to understand the legal situation I am in which save me a lot of time and money. Thank you, Ms. Drain.

Diane was a the best choice we could have made

"Diane was a the best choice we could have made!" R.D. Diane was a the best choice we could have made when choosing our legal counsel. She is as much a teacher as a lawyer, always patient and willing to answer any questions no matter how small. She was [...]

She is like your favorite professor who just happens to be a spitfire attorney and advocate for understanding, support, kindness and knowledge.

“She is like your favorite professor who just happens to be a spitfire attorney and advocate for understanding, support, kindness and knowledge.” N.B. I can't describe in a short review how much Diane and her team changed my life. I'm not being dramatic or cheesey. I had [...]

Communication is key when entering into a bankruptcy

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Thank you both for taking care of us and taking the time!!

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Assisted in identifying and helping me successfully navigate any pitfalls. R.G. Diane Drain and Jay provided professional, comprehensive services and support through every step of the bankruptcy process, were always available to answer questions. Diane has developed an extensive array of handouts and email templates that addressed [...]

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We are grateful for all the kindness and respect they showed us.

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"Your fees are extremely reasonable!" N. We cannot thank you enough for helping us through this difficult and embarrassing situation. After our first phone conversation I had no doubt you would be able to help us and that you actually cared about our situation. So many larger firms [...]

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Business bankruptcy

More Information on Business Bankruptcy

When is Chapter 7 bankruptcy for a business the best choice?

A Chapter 7 bankruptcy, whether for an individual or a corporation, may be the best option when:

  • The company has no future,
  • no significant assets or qualities that cannot be replicated, or
  • the debts are so large that restructuring is impossible.

Individuals can receive a discharge of their dischargeable debts, and a fresh start. In a chapter 7 a business does receive a discharge, but the goal is to provide an orderly liquidation under the bankruptcy trustee’s control. Creditors are guaranteed payment to the extent of the available assets and the priority of their claim. Former management should confirm that the available assets will be used to pay taxes for which the individuals may be liable (after Chapter 7 expenses).

FREE bankruptcy advice

When faced with a financial problem, everyone has a lot of questions. I’d like to respond to your questions, but you must first complete two tasks.

  1. You must understand what creditors can do to your business and you, as well as your rights, including a basic understanding of the bankruptcy process, and
  2. I must understand your company’s specific circumstances, as well as the owners’ personal obligations for the company’s debts.

Anxiety stems from financial difficulties.

There is no obligation to file bankruptcy simply because you fill out this form and we talk about it. In reality, declaring bankruptcy might not be the best option for your business. I am glad to answer to your questions, but this does not imply that we are working together as attorneys. Unless you hire my firm and sign a fee agreement, I am not your attorney.

I understand that this is a difficult time, and I don’t want to make gathering information any more difficult, but I truly want to provide you and your company with the best legal advice I can.  To do that I need your assistance.

This is similar to your doctor requesting blood tests and x-rays in order to properly diagnose a medical problem. Rushing the procedure is not a good idea!!

♥ This quote from one of our fantastic clients may help you better grasp our approach to client work.

Diane and Jay are attentive, knowledgeable, efficient, dependable, good communicators, detail-oriented, well-connected, sympathetic, and caring. They supplied a balance of intellect and heart, as well as experience and proper action, in order to complete the task. We received good suggestions from a well-known lawyer when situations arose that were not directly in her area of expertise. The procedure went smoothly and without a hitch. There was not a single issue with our visit. Everything went great.

(see more of our client reviews)

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