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Chapter 7 Business Bankruptcy Attorney
Since the Pandemic, we have seen a substantial rise in Chapter 7 bankruptcy filings, especially in industries of or relating to construction services, trucking and transportation, beauty salons, elective medical procedures, and restaurants.
A Chapter 7 business bankruptcy is an expedited practice to wind down a business, eliminate business liability and impute the automatic stay in bankruptcy. At Sadek Bankruptcy Law Offices, our Chapter 7 bankruptcy attorneys help business owners throughout New Jersey and the Greater Philadelphia area.
When Should You Consider a Chapter 7 Business Bankruptcy?
A Chapter 7 bankruptcy usually becomes a consideration when a business is not generating enough revenue to meet its monthly operating expenses and business debt payments.
In many cases, especially in small businesses that are directly tied to the owner(s); the business owner will use his or her personal money or take on personal debt to try to revive the business. Which, unfortunately, makes it common for our firm to discuss a business bankruptcy filing as well as a strategy for personal debt accumulated while attempting to sustain business activities.
A Chapter 7 bankruptcy is usually a consideration when the owner of the Limited Liability Company (LLC) or Corporation is using their personal funds or personal loans to meet business expenses on a monthly basis and the business can no longer financially sustain itself.
Chapter 7 bankruptcy is also a consideration when collectors are pursuing the business or a lawsuit is filed against the business which creates further economic hardship.
Moreover, Chapter 7 is an efficient method to wind down a business and liquidate inventory if it exists. By filing a Chapter 7 bankruptcy, there is a definitive closure of the business which puts the business owner in a position to open a new business that might prove to be more profitable.
Chapter 7 Business Bankruptcy FAQs
What Business Debts Can be included in a Chapter 7 Business Bankruptcy?
A PPP loan is an SBA-backed loan program to help businesses keep their workforces employed during the Covid-19 crisis. The PPP loans ended on May 31, 2021. The PPP loans that have an ongoing repayment obligation can be included in a Chapter 7 Business Bankruptcy.
The US Small Business Association assists with business planning, management, and funding. The SBA is not a direct lender, rather it uses a network of lending institutions that offer small business loans at favorable terms. SBA loans are dischargeable in bankruptcy; however, they are usually personally guaranteed.
Meaning, if the business files for bankruptcy, the lender may attempt to collect the loan balance from the business owner against the owner’s personal assets or future income. Accordingly, it is most important to review all business contracts and discuss whether personal liability exists before a Chapter 7 Business Bankruptcy is filed.
The monthly rent or lease obligation is oftentimes one of the largest monthly expenses that a business carries. Unlike personal leases for an apartment which are for a period of one year, business leases can range from a three (3) to ten (year) year term.
The elongated term and expense of a business lease often leads to a business bankruptcy filing. If a business fails to pay rent or vacates the space, the landlord has a duty to “mitigate” his or her damages and try to rent the space, however, most business leases carry an acceleration clause which means that the business can be responsible for the sum due over the outstanding term of the lease itself.
With commercial real estate in decreased demand, it is foreseeable that a landlord will assess the accelerated lease amount against the business. The accelerated lease amount may be a considerable sum, however, a sum that is dischargeable in a bankruptcy filing.
Even in service-related businesses, there are vendors that provide essentials for the business to operate. Usually, vendors are not the largest creditors of a business facing bankruptcy, because the business needs its vendors to continue to operate.
But, unless the debt owed to a vendor is secured by goods it may be included in a bankruptcy Chapter 7.
A Merchant Funding Loan is one that is repaid using a percentage of credit card or debit card sales received by the business. Instead of traditional monthly loan repayment, in merchant funding, a loan is repaid as a percentage of each business sale made.
Merchant Financing loans are extremely easy to obtain and require very little documentation. Merchant Financing can also take less than a day to receive and requires no business credit or collateral. The interest rates on merchant financing loans are extremely high, making the business capital expensive in comparison to more traditional loans.
Further, the percentage of sale repayment makes repayment of the loan burdensome, if not impossible for a business to pay other obligations when having a slower than usual time. Merchant Financing Loans are increasingly driving businesses into bankruptcy and may be included in a bankruptcy Chapter 7 filing.
What Happens When a Business Files Chapter 7?
When a business files for Chapter 7, the bankruptcy court appoints a bankruptcy trustee to gather and liquidate (sell or convert to cash) all of the non-exempt assets of the business. The net proceeds from the sale of these assets are then distributed among creditors in accordance with each creditor’s priority status.
By filing Chapter 7, the business owner avoids personal liability associated with the company’s debts. The bankruptcy trustee will negotiate with creditors to lower or extinguish their claims and all dischargeable debts are eliminated upon completion of the bankruptcy case. The business is then dissolved and its assets are returned to creditors in repayment for their outstanding obligations.
It is important to consult with a qualified bankruptcy lawyer before filing Chapter 7 bankruptcy to ensure that all business debts are properly discharged and the business owner is not personally liable. This can help you understand what will happen to your assets, liabilities, and obligations when filing for Chapter 7 bankruptcy and how it may affect the future of your business.
With the right advice and preparation, the Chapter 7 bankruptcy process can be simple and allows you to start fresh and protect your business from further financial hardship. Contact an experienced bankruptcy attorney today to discuss your options.
Work with Our Dedicated and Experienced Bankruptcy Lawyers
Sadek Bankruptcy Law Offices, LLC has a dedicated team of lawyers who help clients achieve the benefits of bankruptcy in Pennsylvania and New Jersey.
Our lawyers have over 75 years of combined experience and have filed more than 5,000 successful bankruptcy cases.