Chapter 7 Business Bankruptcy Attorney

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.