Helping Businesses Out of a Difficult Situation
Chapter 7 refers to the provision of the United States Bankruptcy Code that permits a business in financial distress to liquidate or sell its assets for the benefit of its creditors. When a business files a Chapter 7 petition it immediately ceases operations and a trustee is appointed to take control of its assets, sell those assets and distribute the proceeds to creditors. At the same time, creditors are automatically enjoined from starting or continuing any efforts to collect debts that are owed them.
The decision to file a Chapter 7 petition is usually the most difficult and painful decision a business ever has to make. This is particularly true for businesses with perhaps a single owner or a few owners who have invested years of their time, energy and resources in the business. However, it is often the only viable solution.
In the United States, bankruptcy is governed by federal law, commonly referred to as the “Bankruptcy Code” (“Code”). The United States Constitution (Article 1, Section 8, Clause 4) authorizes Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States”. Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
Some laws relevant to bankruptcy are found in other parts of the United States Code. For example, bankruptcy crimes are found in Title 18 of the United States Code (Crimes). Tax implications of bankruptcy are found in Title 26 of the United States Code (Internal Revenue Code), and the creation and jurisdiction of bankruptcy courts are found in Title 28 of the United States Code (Judiciary and Judicial procedure).
Bankruptcy cases are filed in United States Bankruptcy Court (units of the United States District Courts), and federal law governs procedure in bankruptcy cases. However, state laws are often applied to determine how bankruptcy affects the property rights of debtors. For example, laws governing the validity of liens or rules protecting certain property from creditors (known as exemptions), may derive from state law or federal law. Because state law plays a major role in many bankruptcy cases, it is often unwise to generalize some bankruptcy issues across state lines.
When Should I File Chapter 7 Petition?
Chapter 7 liquidation is generally a last resort after all other efforts have failed. If there is a way to resolve your debt problems and avoid bankruptcy by negotiating modifications of existing obligations, I will help you do that. However, if your business does not have sufficient prospects to continue operating, filing a Chapter 7 petition wiIl enable your business to shut down in an orderly manner and ensure that creditors are treated fairly and equitably.
Am I Responsible for the Debts of My Business?
A Chapter 7 petition relieves a corporation or a limited liability company of its debt obligations but it does not necessarily protect a sole proprietor or partner in a partnership from creditor claims for collection of the debts of the business. Even in the case of corporations, the principals of the business may have continuing liability for personal guarantees for payment of certain debts required by a creditor as a condition to providing goods or services or providing financing. In some instances, shareholders and owners may also be liable for the unpaid tax obligations of the business. If you are personally responsible for business debts, I can provide advice on how best to minimize those obligations.
For more information or to schedule a consultation with our Law Firm, call 775-690-9120.
Bankruptcy is an invaluable tool for financially troubled companies and their creditors. Unfortunately, it is too often a costly, time-consuming and uncertain process. It doesn’t have to be. I am committed to finding a way to make that process as efficient and successful as possible for our clients. I am passionate about practicing law in a way that is designed to produce the best possible results for our clients.
Bankruptcy can pave the way for a more secure retirement for debt-ridden older adults. It is natural to have many questions about the decision to file, especially when it involves factors like your social security income and retirement accounts. Call the Harris Law office today at 775-786-7600 for a free consultation, also visit our new Facebook Page for more information.