Chapter 11 Bankruptcy Blog

Posts containing useful information about Chapter 11 for anyone considering a North Carolina bankruptcy lawyer

Filing A Restaurant Bankruptcy

As Covid-19 rages on and restrictions for public gatherings ramp up, restaurants in Charlotte and the surrounding area—as well as the country—continue to feel the pain. Many restaurant owners indicate they are at a breaking point financially. During a time when sales are supposed to be highest and restaurants can make up for slower months, the exact opposite is happening.

We speak with small business owners every day regarding their financial predicament. This of course includes restaurant owners. What many small business owners are surprised to find out is that filing a restaurant bankruptcy can be the secret ingredient to future success.

Your Business Can Continue

The options in bankruptcy for restaurant owners have increased with the Small Business Reorganization Act. Together with Chapters 7, 11, and 13, most restaurant owners can find a bankruptcy solution that fits their particular needs.

The primary decision you will need to make is whether the business is going to continue to operate. If it is not, your bankruptcy lawyer will assist with the dissolution of the business in conjunction with the bankruptcy filing. If the business is going to continue, it can do so under either a Chapter 7, 13, or Small Business Reorganization. Chapter 11, an expensive bankruptcy option, is not usually required for a restaurant that is filing bankruptcy.

A recent article in the Philadelphia Inquirer makes specific mention of the concerned business owners have regarding continuing operations. Particularly, the article addresses the concern regarding dealing with suppliers. Typically, suppliers will continue to work with you; however, they may require you to pay COD until you prove yourself with them over time.

You Can Protect Your Assets

The bankruptcy code allows for assets to be exempted from creditors. The ability to preserve assets is different depending upon the Chapter you are filing, and your bankruptcy lawyer will work with you to determine your asset exemption needs when strategizing which bankruptcy route to take.

There are some assets that are exempt from creditors in bankruptcy in an ‘unlimited’ amount—401k and retirement savings, for example—so it is important to speak with a bankruptcy lawyer before you start depleting those assets to keep your business running outside of bankruptcy.

Speak With A Charlotte Bankruptcy Lawyer Today

If you own a small business or restaurant, we are here to help. Speaking with someone about your options not only helps ease the anxiety and fear you are feeling, but also provides you with clear direction regarding your options. We know you have put your life into the business; bankruptcy can help you save it.

To speak with an attorney, call 704.749.7747 or click HERE to request a phone consultation. All consultations are free and can be conducted over the telephone.

Inventory and Equipment in Bankruptcy

A common scenario is emerging across the country, and one which we are addressing in our office with many potential bankruptcy clients. As small businesses further feel the impact of Covid-19, business owners are wondering where—if any—the outlet valve is for them, financially.

The Small Business Catch-22

There is a catch-22 in a small business bankruptcy scenario, in that the business may be providing enough money for the owner and their family to operate their personal household, but not enough money to pay the expenses required to keep the business going.

While this scenario may have been somewhat tenable for restaurant owners and other small business owners during the moratorium on foreclosure and eviction, those days are nearly over. As courts re-open in North Carolina, foreclosures, evictions, and creditor lawsuits will move forward. Without an influx of income or some other relief, this will no doubt place business owners in an untenable position.

The business owner wants to continue to operate the business to bring in necessary income to live off of, but they cannot keep up with the mounting debt and invoices.

How Can Bankruptcy Help?

The type of debt you carry will be a key factor in how your small business will be affected by a bankruptcy filing. Second, the value of your business inventory and assets will be a factor. If your business debt is unsecured debt, you may be able to protect your equipment and inventory from creditors in a bankruptcy. Lastly, you can exempt or protect some of your business inventory and equipment in bankruptcy, if it has value above and beyond what is owed to creditors who have liens against it.

Many of our small business clients elect to file Chapter 13 bankruptcy. So long as you pay your creditors the value of your unexempt business inventory and equipment over the life of the Chapter 13, you can operate your business during bankruptcy. As your business recovers and income increases, it is true your Chapter 13 payment may increase, but you always have the option of dropping out of or dismissing your Chapter 13 bankruptcy if you have recovered enough to enable you to pay your bills.

Secured Creditors

If your debt is secured by inventory or equipment, those secured creditors will take priority over other creditors. They will be entitled to either the equipment, or payment up to the value of that equipment. Depending upon whether the secured creditor was a purchase money creditor, or a general line of credit creditor who took a security interest in equipment you already owned, we can advise how that debt and equipment will be treated in a bankruptcy.

Back Rent In Chapter 13

Chapter 13 offers you the ability to stop an eviction by a landlord, if you show you will be able to pay rent going forward, while slowly making up the missed rent in your Chapter 13 payments. Chapter 13 is typically a 60 month plan, so your back rent is paid over that 60 month period while you continue to make your normal rent payments. The length of your lease will be a factor, as well as whether your landlord has already obtained an order in the eviction process. The end of the moratorium on evictions certainly make the likelihood of filing to avoid eviction a reality.

Walking Away From The Business In Bankruptcy

If you are ready to walk away from the business, you may qualify for a Chapter 7 or a Chapter 13. While this means you would most likely file bankruptcy and dissolve the corporate (business) entity, there is nothing to stop you from forming a new company on the heels of bankruptcy and doing business again under a new name.

Speak With A Charlotte Small Business Bankruptcy Lawyer Today

Call today if you have questions about your small business, equipment and inventory in bankruptcy, or other concerns. The consultation is free, and we are here to help. We can be reached at 704.479.7747. Or, you can click HERE to request a free consultation.

SBA Loans In Bankruptcy

Small business loans or SBA loans are generally eliminated or discharged by a bankruptcy. One exception to discharging SBA loans in bankruptcy, is when the SBA loan is secured by collateral of the debtor. In that event, depending upon its position relative to other secured creditors, your SBA loan may survive your bankruptcy filing.

What Is An SBA Loan?

An SBA loan is a loan granted by the Small Business Administration. These loans are given to individuals to assist with opening a business or continuing to operate a business. You may choose an SBA loan because it is difficult to get financing as a small business, or perhaps because the terms of the SBA loan are more favorable than other types of financing available.

Personal Guarantees For SBA Loans

In almost all cases, you will be required to personally guarantee your SBA loan. This means that if the business defaults on the loan, the lender’s recourse is not only the business assets but also your personal assets. You can generally tell if you have personally guaranteed an SBA loan if you sign the loan documents once for the business and a second time in an “Individual” capacity. If you did personally guarantee your SBA loan or any other loan for your business, do not feel bad—most lenders will not give you the loan without the personal guarantee.

Does A Bankruptcy Address A Personal Guaranty?

Yes. Consumer bankruptcy comes in the form of Chapter 7 and Chapter 13. Both bankruptcy chapters address your personal debt as well as your personal obligation on business debt. The goal of the bankruptcy is to receive a discharge of the debt as to you, the individual. If you own a business which obligated itself on debt, typically you will dissolve the business with the NC Secretary of State in conjunction with filing bankruptcy. This serves to eliminate the business obligation on the debt, while the bankruptcy serves to eliminate the personal obligation.

Secured SBA Loans In Bankruptcy

Secured debt in bankruptcy is treated differently than unsecured debt. This is true whether it is a mortgage, a vehicle loan, or an SBA loan. If you want to keep the property, you must keep the debt associated with the property. For instance, if you own a vehicle worth $14,000 with a loan balance of $13,000, you can choose between surrendering the vehicle (and the debt) to the lender, OR you can retain the vehicle after bankruptcy and continue to make payments on the vehicle loan.

Most SBA loans are secured by real property, or real estate. If you own a home with a fair market value of $450,000 with a mortgage balance of $300,000, the mortgage is fully secured. This is because the balance of the mortgage is less than the FMV of the home. You may have an SBA loan with a balance of $50,000 which is also secured by the real property. While the SBA loan is in second place as a creditor behind the mortgage lender, but the SBA loan is still fully secured.

SBA Loans After Bankruptcy

If your SBA loan is discharged by your bankruptcy, you will have no further obligation to pay it. The SBA loan is treated like all other unsecured debt. If your SBA loan is secured, it will survive the bankruptcy and you will be obligated to continue to pay on it after bankruptcy. Most clients find that if they can discharge all other unsecured debt by way of bankruptcy, they can manage to pay the monthly amounts due on their secured debt. In many ways, when simply looking at the numbers, the discharge of debt in bankruptcy translates into giving yourself a raise.

Speak With A Bankruptcy Attorney Today

Getting started with bankruptcy planning is easy and we are happy to discuss SBA loans in bankruptcy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

How Does Unemployment Affect Bankruptcy?

Many individuals are currently seeking advice regarding unemployment and bankruptcy. Prior to filing bankruptcy, when individuals are fighting off creditors, there are often questions as to whether unemployment can be garnished. We answered those questions in a previous post and the news is mostly good news. However, if you are tired of fending off creditors and want a permanent solution to cash flow, a Chapter 7 or Chapter 13 bankruptcy may be the answer.

Can I Qualify For Bankruptcy If I Receive Unemployment?

Yes. When qualifying for bankruptcy, the Chapter 7 court looks at your income for the 6-month period prior to your bankruptcy filing date. If your income is lower than the Median Income for a household of your size, you can qualify automatically for bankruptcy. Below you will find totals for household size, monthly income, and annual income:

HOUSEHOLD SIZE                             MONTHLY INCOME                         ANNUAL INCOME

1                                                                  $3,992.00                                             $47,904.00

2                                                                 $5,078.83                                             $60,946.00

3                                                                 $5,660.92                                             $67,931.00

4                                                                 $7162.33                                              $85,948.00

 

Remember, the bankruptcy court is looking at the most recent 6 months of income. If you have been collecting unemployment, chances are you are well below these totals. Even if your income or your combined household income exceeds these totals, you may still pass The Means Test in bankruptcy. The Means Test looks at your overall income vs. your overall ongoing expenses. It represents an equitable approach to providing bankruptcy relief for those who make more than the Median Income, yet who still deserve debt relief.

Do Stimulus Funds Hurt My Bankruptcy Filing?

If you have received stimulus funds from the federal or state government related to the Coronavirus, the funds will not be counted as income for the purposes of determining whether you qualify for Chapter 7. However, those funds are part of the Bankruptcy Estate. This means that if you still have some of your stimulus funds on hand when you file bankruptcy, you will need to exempt them or risk losing them to the court. In most cases, the funds can be exempted, and your bankruptcy lawyer will explain how this works.

Do Stimulus Funds and Unemployment Affect Bankruptcy In Chapter 13?

Unfortunately, if you are receiving unemployment income only, it may not be enough to show that you qualify for Chapter 13. If you are considering a Chapter 13 for the purpose of getting current on a mortgage or car loan, your incoming monthly unemployment will have to exceed your monthly expenses in order to successfully enter Chapter 13. Additionally, while the stimulus funds are helpful to your budget, they can not be factored in when considering your anticipated ongoing disposable income in a Chapter 13 filing. Again, these concerns are only for a Chapter 13.

Speak With A Charlotte Bankruptcy Lawyer Today

Getting started with bankruptcy planning is easy. We are happy to discuss further with you how unemployment can affect bankruptcy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

 

Filing A Small Business Bankruptcy

Filing a small business bankruptcy in North Carolina is an endeavor which will relieve you of your personal obligations on business debt. For most small businesses, a Chapter 7 or Chapter 13 combined with a dissolution of the corporate entity, will accomplish your goals.

While Chapter 11 is designed for traditional business bankruptcy filings, it is an expensive bankruptcy option that costs debtors tens of thousands of dollars. There are times when a Chapter 11 is the appropriate avenue for a corporate entity to enter into bankruptcy and continue to do business. More often, in a small business bankruptcy setting, a Chapter 7 or Chapter 13 will serve to meet your goals, and save you thousands of dollars.

Debt With A Personal Guaranty

As part of preparing for bankruptcy, you must review your debt obligations with the help of your bankruptcy attorney. Specifically, it is important to distinguish between debt which is to the corporate entity only, and debt which includes a personal guaranty. The dissolution of the corporate entity serves to relieve the corporate entity of the obligation on the debt; the personal bankruptcy filing will serve to address the personal guaranty.

Anti-Bankruptcy Clauses In Contracts

Many corporate debt contracts contain language specific to bankruptcy. Those contracts often dictate that a bankruptcy filing will not serve to relieve the personal guaranty or other obligations to repay the debt. While this language is freely entered into by both parties signing the contract, courts have rules it to be in conflict with public policy. Our firm will defend any challenges to the discharge of your corporate debt, specifically challenges premised upon an anti-bankruptcy clause.

Profit and Loss Statements

Qualifying for Chapter 7 requires a thorough review and disclosure of your income for the 6-month window prior to the filing. When operating as a small business, debtors are typically not paid as W-2 employees. LLC members and partners take draws and often those draws differ dramatically from month to month, depending upon the profitability of the business. Additionally, while bankruptcy is available for debtors who qualify from an income perspective, you must demonstrate to the bankruptcy court your income, as defined by the bankruptcy court. This necessitates the submission of a profit and loss statement showing actual gross income, less actual expenses. Our firm will guide you through this process. We can help to create your profit and loss statement or advise a third party—typically an accountant—who you might retain to prepare it for you. For small businesses which have not had much income over the 6-12-month window prior to filing, often the profit and loss statement is easily created.

Call For A Consultation

We know the stress of running any small business. When you’re facing financial difficulties, it can be overwhelming. We’re here to help. Call us for a free consultation at 704.749.7747 or click HERE to make a simple request to be contacted. We will reach out to speak with you or schedule a time to speak. Your financially recovery is right around the corner, and we hope you choose to Recover With Us.

Can I File Bankruptcy Again?

If you’re thinking about filing bankruptcy again, you will need to know whether you received a discharge in your prior bankruptcy filing. Most of the rules regarding whether you can file bankruptcy again depend upon whether you received a discharge. If you’d like to speak with someone to get an answer, simply call us at 704.749.7747 or click HERE to request a free phone consultation.

If You Filed A Prior Chapter 7

If your prior bankruptcy was a Chapter 7, and you received a discharge, you must wait 8 years from the date you filed your previous case. After the 8 year mark, you can file Chapter 7 again in North Carolina.

If your prior bankruptcy was a Chapter 7 and you would like to file Chapter 13, you will need to wait 4 years after the filing of the Chapter 7.

If your did not receive a discharge in your prior bankruptcy filing, simply call us and we will pull your prior bankruptcy filing from the online database. We will be able to tell you when you are eligible to file bankruptcy again. If your prior case was discharged With Prejudice, then you usually only have to wait 180 days to file again. Your bankruptcy attorney may need to file a motion to put the Automatic Stay in effect for your new bankruptcy filing. This is an important step that needs to be taken if you’ve recently filed a bankruptcy which was dismissed.

If You Filed A Prior Chapter 13

If you received a discharge in your prior Chapter 13, you must wait at least 2 years after the date the first case was filed, if you want to file another Chapter 13. If you would like to file Chapter 7 after a successful Chapter 13, you must wait six years to file bankruptcy again. You will need to pass The Means Test in Chapter 7, and we will assist with that.

If you did not receive a discharge in the Chapter 13, and the court has not placed any restrictions on re-filing, then you can file a Chapter 7 immediately after the Chapter 13 is dismissed.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy again, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

How Does Bankruptcy Work In NC?

The way bankruptcy works in NC is that you file either a Chapter 7, Chapter 11, or Chapter 13, and follow the rules provided by the bankruptcy code in order to obtain your Discharge in bankruptcy.

The Length Of Your Bankruptcy

Depending upon which chapter you choose, the length of your bankruptcy will differ. If you choose Chapter 7, you will have a 341 Meeting about 45 days after the filing of your bankruptcy. Your Charlotte bankruptcy attorney will attend the meeting with you, and you’ll answer questions from the trustee. Generally, creditors do not show up to this meeting.

About 60 days after your 341 meeting, provided there are no challenges to your bankruptcy, you will receive your Discharge. This means the court agrees that your bankruptcy filing is proper and your debts should be extinguished by way of your bankruptcy filing.

Sometime between the 341 meeting and the entry of your Discharge, your trustee will typically close your case as well. This means the trustee has reviewed the case and determined there are no assets to distribute to creditors. Once the trustee has closed your case, and the court has entered your Discharge, your Chapter 7 is complete.

Choosing Chapter 13 Bankruptcy

If you choose Chapter 13, the answer to the question “How does bankruptcy work in NC?” has a slightly different answer. Mainly, the difference is the length of your bankruptcy is much longer. However, there is good reason for this. Most people choose Chapter 13 to save a house or car if they are behind on payments. The Chapter 13 is typically 60 months long and allows you to get caught up on these payments while preventing your creditors from trying to take action against you. So long as you make your Chapter 13 payments, when you reach the final payment you will be caught up on the house and car, and you will also receive a Discharge for you unsecured debt (credit cards, medical bills, etc.).

Despite the length of a Chapter 13, provided you make your Chapter 13 payments on time, you should not have to attend court during your bankruptcy. If there is the need for a hearing, your attorney can often attend without you, which makes Chapter 13 quite convenient.

Choosing Chapter 11 Bankruptcy

A Chapter 11 bankruptcy is similar to a Chapter 13 bankruptcy; however, it is more suitable to corporations and small businesses that need to “reorganize” their debt. Whereas the trustee approves or recommends a Chapter 13 case for confirmation to move forward, your attorney must negotiate with each creditor in a Chapter 11. Despite this, the result is fairly similar—you enter into an agreement to pay back a percentage of your debt in exchange for protection of the bankruptcy court.

Speak With A Charlotte Bankruptcy Lawyer Today

If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.

Further Reading

If this article was helpful, you may find other helpful articles on our Bankruptcy Blog. Thank you for visiting the website—we hope it has been helpful.

Chapter 11 Bankruptcy In NC

A Chapter 11 bankruptcy is a way to reorganize your business debt while continuing to do business. Chapter 11 enables you to continue your livelihood without the constant threat of creditors to sue you, shut down your business, or otherwise disrupt you from being profitable.

When you file Chapter 11 bankruptcy, you and your bankruptcy attorney are proposing a plan to your existing creditors. Depending upon the profitability and assets of the ongoing business concern, your plan will propose to pay a percentage of your debt to creditors over time.

The Cost of Chapter 11 Bankruptcy

The court charges a filing fee of roughly $1,200.00, together with an administrative fee of $550.00. There are ongoing quarterly fees that must be paid to the court as well. Your attorney fees related to Chapter 11 bankruptcy are hourly. While your bankruptcy attorney will need to evaluate your case before estimating the attorney fees, it is a safe assumption your Chapter 11 bankruptcy will cost somewhere between $10,000.00 – $15,000.00. We know this is a substantial amount of money. Whether to file Chapter 11 will depend upon whether the cost of doing so is outweighed by the benefit to you and your business. Your bankruptcy attorney should help you sort through those questions as you gather information about the business together.

Do My Creditors Have To Accept My Chapter 11 Plan?

No, your creditors do not have to accept your Chapter 11 plan. However, if the plan is reasonable given the income, assets, and overall financials of the business, your bankruptcy attorney will argue on your behalf that the plan should be accepted. Generally, your Chapter 11 plan is a five-year plan; however, you can propose a shorter plan if the shorter plan pays all creditors in full over the course of the plan. Generally, you must commit all of the business’s disposable income over the five-year period to the plan. The calculation of disposable income is an equation involving income and expenses. If income and expenses change significantly during the plan, your Chapter 11 plan may need to be re-evaluated. In this regard, the Chapter 11 bankruptcy is reflective of your ability to pay, both at the time of filing and ongoing during the life of the plan.

Chapter 11 For Corporations vs. LLCs or Partnerships

A Chapter 11 bankruptcy for a corporation will only consider the assets of the corporation. To the extent the individual filing bankruptcy owns the stock of the corporation, the stock assets must be considered in the assets calculations filed with the court.

A Chapter 11 bankruptcy for a partnership, LLC or sole proprietorship, is distinguishable from a Chapter 11 for a corporation or “C-corp”. In this filing, the individual and the business are treated as one for bankruptcy. The result is that all personal assets must be disclosed and considered when proposing the overall plan to pay back creditors over time in Chapter 11.

Chapter 11 vs. Personal Bankruptcy

In many cases, it is preferable to file personal bankruptcy—Chapter 7 or Chapter 13—in lieu of filing a Chapter 11. The cost of filing is considerably lower, and the complexity of the case is different as well. If your company has few assets, you may be able to accomplish your goals by dissolving the company. This will relieve the company’s obligation under company debt. To the extent there is a personal obligation attached to the company debt, a Chapter 7 or Chapter 13 would serve to discharge the individual from that debt.

Speak With A Charlotte Bankruptcy Attorney

The next step is to speak with a Charlotte Bankruptcy attorney. Consultations and case evaluations can be done over the phone or in person. You’ll come away with a much deeper understanding of your options. This alone provides peace of mind. If you decide to move forward with a bankruptcy filing, we can discuss the next steps and take action together immediately. Call us at 704.749.7747 or click for a FREE CASE EVALUATION and we will reach out to you. We know you have options. We hope you choose to Recover With Us.