Filing bankruptcy for your business is an unfortunate life event, but it doesn’t have to be arduous. In this blog, you’ll learn about the types of bankruptcy, how to file for them, how a lawyer can help, and some possible life rafts to consider before you file.
Types Of Bankruptcy
The liquidation of assets to recoup debts.
- This type of bankruptcy is available to individuals and companies when your income is less than the median in Florida or you can pass the means test.
This is a form of bankruptcy only municipalities qualify for.
- Not available for most individuals and companies
Available if the debtor’s debts exceed their income-driven repayment plan for chapter 13 bankruptcy
- Most commonly used by businesses (Kmart, Neiman Marcus), but is available to individuals
Only applies to family farmers
Requires a payment plan from disposable income to recoup debts
- Available to individuals
How To File For Bankruptcy
Chapter 7, 11, and 13 are the options for business bankruptcy. Chapter 7 is the option for those who want to liquidate their assets and put the amount towards their debts and cease operations while chapter 11 and 13 bankruptcy is for those trying to restructure their debt with a payment plan.
When choosing to file for bankruptcy a lawyer is a great asset to have as they will handle many of the steps and litigation mentioned below.
- Take the “means test” to find out whether you qualify for chapter 7 bankruptcy
- Take a credit counseling class with an approved provider six months prior to filing
- Make a list of exempt and non-exempt property
- Fill out free bankruptcy form
- File the forms with the court. There is a fee associated with this unless you qualify to be exempt. (Those in Tampa will attend the middle district of Florida court)
- Take a debtor education course
- File bankruptcy paperwork with the court (Those in Tampa will attend the middle district of Florida court)
- A trustee will be appointed to you
- In this stage, your property is protected from creditors taking action against you
- Disclose all assets
- List all creditors
- Make a list of assets and liabilities and the payment schedules assigned to those
- Write a statement of your current financial affairs as it pertains to your life
- Notice to creditors is sent out by the court clerk
- Filing ‘proofs of claim’
- The date this needs to be completed by will be on the notice to creditors
- A United States Bankruptcy Trustee will appoint a committee to oversee the interests of unsecured creditors
- You are responsible for the fees associated with this committee
- Reorganization Plan
- You have 120 days from filing for chapter 11 bankruptcy to create a restructuring plan
- Court approval of disclosure statement
- Vote on a reorganization plan
- After the disclosure statement is approved a vote must be held to see if the reorganization plan is viable. This will be voted upon by the creditors.
- Court hearing for confirmation of the plan after all parties agree
- Courts will determine if the plan is doable, it is proposed will all intention of staying the course, and it acts in accordance with the Bankruptcy Code
- See if you qualify for chapter 13 bankruptcy
- Attend a credit counseling class with an approved provider
- It is advised you contact an attorney, as chapter 13 is very complicated
- Gather all financial information like assets, debts, liabilities, etc
- File for bankruptcy (Those in Tampa will attend the middle district of Florida court)
- Like chapter 11, a trustee will be appointed to you and all creditors must cease actions against you
- File repayment plan within 14 days of filing bankruptcy
- Start making payments within 30 days from filing even if the plan is unapproved
- Your trustee will meet with your creditors within 21-50 days so they can air their grievances
- Within 45 days of the meeting of creditors, there will be a hearing with you, your trustee, and the creditors to confirm your repayment plan
- You will pay over the next three to five years depending on your deal with the creditors
- Similar to step 2, you must complete a ‘debtor education course’ from a non-profit counseling agency
What Will Happen To Your Business After Filing For Bankruptcy?
If you file for chapter 7 bankruptcy your business goods will be sold by a “trustee”. The profits will go towards your debt. You will cease all operations and can not continue under that business name.
If you file for chapter 11 bankruptcy you will have more control over the process and how to restructure. Some companies restructure and are able to return to profitability. This is the more desirable option if you want to restructure and continue that business.
Chapter 13 is similar to chapter 11, you will have control over the business restructuring and how long it will take. You will also be allowed to continue operating the business.
Credit Score Post Bankruptcy
One of the hardships placed upon those that file for bankruptcy is a drop in their credit score. Your score can fall anywhere from 160-220 points. The long term effects are felt from the record bankruptcy leaves. Credit reporting companies show a bankruptcy on someone’s credit history for 10 years after filing for chapter 7 or chapter 11 bankruptcy, while chapter 13 shows for seven years.
Bankruptcy During COVID-19
Such an unprecedented time has caused hardships for many businesses. More business than ever are filing for bankruptcy in Tampa Bay, but bankruptcy should always be the last option. Here are some options to consider before filing.
SBA (Small Business Association) Loan – The SBA is providing two loans through the CARES Act
Paycheck Protection Program (PPP)- Potentially forgivable loan that allows owners to keep their businesses staffed. 1% interest for a term of two years for any amount that isn’t forgiven.
Economic Injury Disaster Loan (EIDL) and Advance Grant- Short term capital to keep the business going. 3.75% interest rate and non-profits receive a 2.75% interest rate.
Agricultural businesses are eligible for a $10,000 loan advance that does not need to be paid back.
Tampa has put together a fund for businesses in the area that can cover up to $4,000 in rent payments and $1,000 in utility coverage. The payments will be paid directly to your landlord and utility companies. This is a grant that does not need to be repaid.
Jennis Law Firm is here to assist you with bankruptcy litigations, dissemination of information, and protection of your rights. Call us at 813.229.2800 or contact us online to figure out what steps to take.