Business Bankruptcy, Insolvency and Restructuring
If you are a business owner, member or shareholder, there are multiple forms of bankruptcy relief available to relieve financial pressure.
Chapter 13: Small Business Repayment Plan
Most often used by individuals, Chapter 13 can be used for small businesses by sole proprietorships because the sole proprietor and the individual are generally indistinguishable.
The small business sole proprietorship that wants to reorganize rather than liquidate files Chapter 13, including a repayment plan that details how debts will be repaid.
The amount that must be repaid depends on how much you earn, how much is owed, and the value of the property owned.
Chapter 13 protects personal assets, such as a home, which would be exposed to seizure if a sole proprietor filed Chapter 7.
Chapter 7: Liquidation
A business that is overwhelmed by obligations may be a candidate for a Chapter 7 business bankruptcy. The owners, members or shareholders surrender their business to a court-appointed trustee for an orderly liquidation. Exemptions are not applicable and all assets, at least in theory, will be sold.
At the completion of the process, all obligations such leases, contracts, loans, overdue accounts, credit cards, and other business debts are generally written off by creditors as all business assets were presumably liquidated. There is no discharge in business Chapter 7, however, the practical effect here is that the business’s assets are liquidated and creditors paid to the extent possible.
Unless they have made themselves personally liable for the business’ debts, the former owners are free and clear.
Chapter 11: Business Reorganization
For a business, bankruptcy does not necessarily mean the "end-of-the-road." If it did, there would be three fewer major air carriers (United, Delta, American), two fewer car manufacturers (General Motors, Chrysler), and no Marvel Universe.
Chapter 11 filings — which surged during the coronavirus shutdown in 2020 — allow troubled businesses to protect themselves from creditors while they reorganize their business operations, debts, and assets.
If all goes well, the business re-emerges a few years later — oftentimes smaller, sleeker, more efficient, profitable — and creditors have enjoyed a more satisfactory return than they would have if the business ended operations and was liquidated.
Sometimes, however, Chapter 11 buys only time. The reorganization plan fails, and liquidation results.
Subchapter V (Chapter 11): Business Reorganization
Chapter 11, Subchapter V cases, often referred to as "SBRA" cases, are a relatively new form of bankruptcy that was added to the Bankruptcy Code in February 2020 to provide an efficient and cost-effective process for small business desiring to reorganize under Chapter 11. While it is anticipated that the debt limits for this type of case will crease, as of June 1, 2024, the debt limit for a Subchapter V case is $3,042,725.00 (reduced from $7,500,000.00).
As with a standard Chapter 11, if all goes well, the business re-emerges a few years later — oftentimes smaller, sleeker, more efficient, profitable — and creditors have enjoyed a more satisfactory return than they would have if the business ended operations and was liquidated.
Chapter 12: For Family Farmers and Fishermen
Comparable to a Chapter 13, a Chapter 12 provides family farmers and family fishermen who meet certain criteria to propose a repayment plan lasting from three to five years.
However, anticipating the seasonal nature of many small farming and fishing operations, Chapter 12 allows more flexibility in structuring periodic payments.
Chapter 12 helps multigenerational families involved in the business in which the parents have guaranteed debt.
Family farmers or fishermen considering Chapter 12 should be aware of several changes that came about in 2019 regarding the sale of assets. It’s a good idea to review these changes with an attorney or an accountant trained in bankruptcy law.
About us
Bush Law Firm and its team is dedicated to providing quality legal services to both businesses and individuals throughout the State of Alabama. With years of experience in a wide range of legal matters, including bankruptcy, business litigation, estate planning, probate, and personal injury, we are committed to offering personalized and effective legal representation. Our team of attorneys takes the time to understand the unique needs of each client, ensuring that we provide the best possible solutions. At Bush Law Firm, we pride ourselves on our professionalism, dedication, and unwavering commitment to our clients' success.
No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.