In 2019 Congress recognized that a streamlined, less expensive, small business Chapter 11 could be lifeline to small business owners trying to get through an economic setback. As a result, in February 2020, Chapter 11, Subchapter V, became a bankruptcy filing option. Initially, the debt limit was $2.73 million. However, the federal stimulus program (CARES ACT) expanded eligibility this year to businesses and individuals with up to $7.5 million in debt. Now small business owners have the ability to quickly present a debt restructuring plan that may be approved even if creditors don’t like it (“cramdown”), the owner can continue in control of running the business, and the entire process should be quicker and less expensive.
How does Subchapter V, Chapter 11 work?
Here is the main thing to know – filing for bankruptcy stops creditors from collecting from you and buys you time.
If you used your house as collateral for a business loan, the debt can be restructured.
How do I know when to call it quits?
The first question to ask is: “Do you want to keep this going?” If the answer is yes, contact us today and let us help you decide whether that is the right call.
How do I know if Chapter 11 would help?
If you want to keep the business going, ask yourself whether after payroll, payroll expenses, rent and the cost of goods sold, do you have positive cash flow? Do not include debt in your analysis. If the answer is yes, contact us today and let us help you decide whether that is the right call.
We can assist you in trying to negotiate with creditors outside of a formal bankruptcy.
Moore and Brooks represents numerous clients who sought our services with bankruptcy in mind and, once we became involved and successfully worked with their creditors to negotiate more favorable terms, filing for bankruptcy protection was no longer necessary.
If creditors are unwilling to work with us, we would consider a Subchapter V, Chapter 11 bankruptcy which allows you the opportunity to restructure debt and perhaps eliminate other debt by agreement with creditors or through a “cram down”, a restructuring plan available for repayment of debt over 3 to 5 years, despite creditor objection.
Should I take out a loan or file for bankruptcy?
Borrowing may make matters worse. Many businesses and their owners no longer have the credit necessary to obtain favorable loan terms and the owner may have to personally guarantee debt. The small business’s Chapter 11 won’t bankrupt the guarantor’s liability. If you find yourself considering non-bank lenders with high interest rates, it’s time to call a lawyer.
Non-bank, fly-by-night lenders prey on distressed businesses, making cash advances in exchange for exorbitant daily automatic cash withdrawals from the business operating account and demanding confessions of judgment. The interest rates can be in excess of 200%!
Should I file for Chapter 7 for my business?
A business Chapter 7 is essentially calling it quits and provides for the appointment of a bankruptcy trustee to wind up the affairs of the business and liquidation of assets.
If you are trying to restructure the business, Chapter 7 is not an option.
Chapter 7 is likely unnecessary for a business you intend to close as state laws provide a mechanism for winding up the affairs of and terminating the business existence.
Call Moore & Brooks Attorneys at Law today at (865) 450-5455 for a comprehensive evaluation of your business’ financial options.