What Is A Business Bankruptcy? Part I
As a Board Certified Consumer Bankruptcy Attorney, I see people on a daily basis who are facing financial problems. Bankruptcy has taken on a whole new life recently as were are in the midst of a serious recession that is only getting worse. Bankruptcy is now on the minds of people who never thought they would find themselves in financial difficulty. More and more small business owners are finding it hard to make ends meet. Many of these small businesses relied on one industry or another that has dried up in Southwest Florida. These business owners believe that the solution to their financial problems is to bankrupt the business and put it behind them. However, many do not know that filing bankruptcy for a small business may not be a very good idea at all.
While filing bankruptcy for a business may seem like a very tidy way of cleaning up the financial mess, there are many considerations that must be analyzed prior to taking this leap of faith. First, many business owners think their d/b/a is a corporation. The structure of the business is really important. A person who is working and "doing business as" is not acting under the framework of a legal corporation. Therefore, there can be no business bankruptcy. That person can file a personal bankruptcy and include all of their debts and the alleged business debts. I say alleged because that is what the debtors commonly refer to them as.
If a corporation truly exists, then the debtor corporation will have to decide which type of bankruptcy will suit the business. A corporation can file a Chapter 7 liquidation bankruptcy or a Chapter 11 reorganization. A chapter 11 reorganization is beyond the scope of this blog, but suffice to say, it is an option. Usually, chapter 11 is not a very viable option for a small business owner. If a corporation is seeking to file Chapter 7, an attorney really needs to analyze the debts involved and the reasons of the owner.
In a large percentage of cases, the assets of the small business are leased or financed in some fashion and the owner has signed a personal guarantee. For example, let's say the corporation is a Travel Agency. The corporation leased an office, leased a computer system, phone system and a copier, all with personal guarantees. The owner purchased the office furniture and they opened up for business and things were going smoothly. Then the credit card applications started coming in, and the owner thought things were good enough to open up a few lines of credit, you know, to build the credit rating of the business and take advantage of all the write-offs that are available. The owner even thinks of expansion and branching into new areas. So, he uses the available credit to reach his potential, and all the plans look good on paper.
Please continue reading Part II of this post.
This post is submitted by Carmen Dellutri, Esq. Mr. Dellutri is a Board Certified Consumer Bankruptcy Specialist, practicing in all of Southwest Florida, with offices in Port Charlotte, Fort Myers, Naples and LaBelle. He is the founder of the Dellutri Law Group, P.A., and he is one of the founding members of the Bankruptcy Law Network, Debt Law Network, Credit Law Network and Mortgage Law Network. Mr. Dellutri also sits on the Board of Directors for the American Board of Certification, which certifies attorneys as specialists.
