The Advantages of a Bankruptcy Attorney for Guidance

Posted on: 18 August 2020

If you cannot pay your business debts and are considering bankruptcy, you may be able to wipe your debt slate clean. The bankruptcy system is designed to help you regain your financial footing while recovering as much debt as is feasible for your debtors, but it does not want to kill your entrepreneurial spirit. 

Bankruptcy courts make a distinction between business and consumer debt. If you acquired debt while building and operating a business, you may qualify to file under Chapter 7 of the bankruptcy law.

To file for Chapter 7, you need to meet the following conditions: 

Dissolve Business Not Consumer Debt

The bankruptcy court offers alternative debt management solutions for business debt. If you are unable to pay off credit card debt for personal goods or car loans, you will find yourself before a judge in Chapter 13 bankruptcy court. But if your competitor built a better widget than you, the court may discharge more of your debt. 

To start with a clean slate, you must be ready to dissolve your business and sell off business assets to repay your debt. Sometimes starting fresh under a new corporate name, with new ideas, and more business prowess after a few lessons from the business school of hard knocks is the best approach. 

Pass an Income Means Test

Before you file for Chapter 7, you need to pass an income means test. 

Chapter 7 is sometimes wrongly portrayed as a bankruptcy loophole for rich guys. To avoid abuse of Chapter 7 by those with the means to pay their debts, the bankruptcy system conducts an income test. 

Each state applies different criteria. If the person filing for Chapter 7 bankruptcy has a monthly income above the state's median, the means test will be conducted. Your family obligations and other expenses will be considered. In addition to selling your business assets, the bankruptcy judge may also request a lien or mortgage be placed against the property you own. 

If you choose not to liquidate your business, however, you have other options. Corporations, partnerships, or sole proprietorships can file for Chapter 11 bankruptcy protection. The court and your bankruptcy lawyer will help you structure a repayment plan with your debtors so you can continue with regular business operations. 

What if your business still has problems covering its debt? Your bankruptcy lawyer can explain your options, explore common scenarios, and answer the what ifs, and any other concerns and questions you may have.

If you have more questions, reach out to a local bankruptcy lawyer.