No one sets out in business intending to be unable to pay business debts. Success in business is a gamble, no matter how well-prepared a business plan may be. Sometimes factors completely out of a business owner’s control change the business environment, and suddenly there is far less money coming in than has been promised out.
Bankruptcy can be a way for a business to pay back creditors without having to close its doors. Bankruptcy can take the financial pressure off and allow a business owner to focus on running the business. Bankruptcy is a process by which everyone may be able to win a little so no one has to lose a lot.
The Birk Law Firm can handle many of the legal needs of families in Cape Girardeau, MO – including business bankruptcy. Our business bankruptcy attorney believes in small business ownership. He finds creative solutions for business owners who are struggling to manage debt and keep their businesses going.
The Benefits of Hiring a Business Bankruptcy Lawyer
For some, the thought of filing bankruptcy may seem like defeat or failure. But in reality it can be a strategic business decision that, if done thoughtfully, can get creditors most of what is owed and give a business owner a fresh opportunity to make a go of it.
When a person is considering filing for bankruptcy, there is a lot on the line. Hiring a business bankruptcy lawyer can take much of the stress out of the process and help a business owner become more objective about the situation. Some of the specific benefits a business bankruptcy attorney can provide are:
- Knowledge of the bankruptcy laws and how to apply the laws most favorably to client circumstances
- Knowledge of the local court system and how to adjust for local legal preferences
- Knowledge from previous client experience on how to propose workable business reorganization or liquidation plans
- Counsel and recommendations on legal options based on individual circumstances and desired outcomes.
Why Birk Law Firm is the Right Choice for a Business Bankruptcy
Taking your business through bankruptcy is a big step, and you want to make sure to work with the attorney who you feel will do the best job. A lawyer should have the qualifications, experience, and client feedback that convince you the financial welfare of your business is in good hands.
The Birk Law Firm has more than 30 years of experience in tax and business consulting. Attorney Kelvin Birk is also a Certified Public Accountant. He has been admitted to practice in federal bankruptcy court for almost 15 years. The clients of the Birk Law Firm will attest to the firm’s professionalism, legal knowledge and abilities, and personal attention.
Business Bankruptcy in the US
Year over year, business bankruptcy filings across the United States were up significantly in January 2023. The end of pandemic government stimulus monies and the uncertainty of current economic conditions are thought to be fueling the rise in business bankruptcies.
Under the federal Bankruptcy Code, businesses have several options when considering filing for bankruptcy, depending on how they operate and the amount of accumulated debt. Bankruptcy types are often referred to by the chapter of the Bankruptcy Code that authorizes them.
When to Consider Filing a Business Bankruptcy
Bankruptcy is not usually the first solution thought of by a business experiencing financial difficulties. Sometimes renegotiating contracts with creditors or finding a way to raise additional capital can get a business through a rough spot without the need to resort to bankruptcy.
Bankruptcy can help a business get back on its feet and offer a business owner a fresh start.
Chapter 11 – Bankruptcy for Business Reorganization
A Chapter 11 bankruptcy is for a business that is not a family farm or has too much debt to qualify for other options and intends to continue to operate under a debt repayment plan. Chapter 11 is primarily used by business entities like corporations and partnerships, but it is also available to individuals.
Unlike other bankruptcies, a case trustee is not always appointed in a Chapter 11 bankruptcy. Instead, the ‘debtor in possession’ is required to perform many of the responsibilities normally undertaken by a bankruptcy trustee but must get court approval for any major business decisions. A trustee may be appointed in cases where there is evidence of fraud, dishonesty, incompetence, or gross mismanagement.
Filing a petition for Chapter 11 bankruptcy will stay collection attempts by creditors. The petition may be filed voluntarily by a debtor or forced by three or more creditors. A debtor is generally required to file a business disclosure statement along with a plan for debt reorganization.
There is no time limit for creditor repayment in a typical Chapter 11 bankruptcy. A debtor usually has four months to submit a proposed repayment plan, but the deadline can be extended up to 18 months. Getting creditor approval may require modifications and ongoing negotiation.
Once a plan of reorganization has been confirmed, the debtor will begin repaying creditors in 30 to 90 days.
Chapter 11 has some special provisions that apply to qualifying small businesses and are intended to streamline the process while keeping costs down.
Small Business Case
The Small Business Case is for businesses that have total secured and unsecured debts of $3,024,750 or less at the time of filing the bankruptcy petition, with at least 50% of the debt arising from business activities.
Subchapter V of Chapter 11 was created by the Small Business Reorganization Act (SBRA) of 2019. Subchapter V is designed to allow small businesses to reorganize faster and at a reduced cost. Businesses with total secured and unsecured debts of $7,500,000 or less, with at least 50% of the debt arising from business activities, can file for bankruptcy under Subchapter V.
Chapter 12 – Bankruptcy for Family Farms
Chapter 12 of the Bankruptcy Code is specifically tailored toward family farmers and fishermen who have ‘regular annual income’ from their operations. It is more favorable for reorganizing the debt situations of family farms and is less complicated and expensive than a Chapter 11 proceeding.
Persons or entities wanting to file a Chapter 12 bankruptcy must meet certain qualifications regarding income and debt and must participate in credit counseling. Filing the petition will stop or ‘stay’ most collection activities by creditors.
Under Chapter 12, a family farm or fishing business proposes a plan to repay creditors over a 3-to 5-year period. This is an opportunity to adjust amounts owed, extend payment periods and reduce interest rates. Payments are made to a trustee who then distributes the payments to creditors according to the plan.
The bankruptcy may be discharged after all payments under the plan have been made. Discharge of bankruptcy releases a debtor from all dischargeable debts that were part of the repayment plan.
By law, certain debts cannot be discharged in bankruptcy and must be paid in full. Support obligations and debts incurred from illegal activities may not be discharged.
Chapter 12 has some unique provisions applicable to the favorable treatment of income taxes owed due to the sale of farm assets. These provisions are not available under the other Chapters in the Bankruptcy Code.
Farming Operations in Missouri
With 95,000 farms, Missouri has the second largest number of farms in the country. Missouri is second in hay production, third in beef cow production, and fourth in rice production. The majority of farms are family owned and have an average size of 290 acres. Farming is essential to the state’s economy contributing close to $94 billion annually.
Bankruptcy can be a way for small farming operations to manage the economic impact of changing market conditions while continuing to contribute to the nation’s agricultural needs.
Chapter 13 – Bankruptcy for Reorganizing Sole Proprietors
Debt reorganization for individuals is governed by Chapter 13. Business entities are not eligible to use Chapter 13. Qualified persons must have a steady income and combined secured and unsecured debts no greater than $2,750,000. A debtor must submit a repayment plan usually within 14 days of filing and will have 3 to 5 years to make payments to creditors through the bankruptcy trustee.
Chapter 7 – Bankruptcy to Liquidate Businesses
A business that files for bankruptcy under Chapter 7 must close and will lose control of its business assets to the bankruptcy trustee who will determine how best to sell them and distribute the proceeds to creditors.
There is no opportunity to negotiate debt reduction; for business entities, the unpaid balance of debt remains due and payable after the bankruptcy. This has the potential to result in individual liability for the remaining debts of the business entity and needs to be carefully considered before filing under Chapter 7.
Contact a Business Bankruptcy Attorney in Cape Girardeau, MO, at Birk Law Firm Today
At the Birk Law Firm, we can appreciate the hesitancy some business owners may have about filing for bankruptcy. We take the time to get to know each client’s business situation so we can recommend the best course of action based on the objectives of the client.
For a free consultation with a business bankruptcy attorney in Cape Girardeau, MO, call 573-332-8585 or contact the Birk Law Firm.
ALL YOUR LEGAL NEEDS
Why Choose Birk Law?
Birk Law Firm is a small firm by choice that is big on client services. Attorney Kelvin Birk and his team are responsive to their clients’ needs. When we sign on as your law firm, you can count on us for strong legal counsel, from negotiations to settlement to trial.
Our clients benefit from the intertwining of Kelvin Birk’s legal and CPA background and experience. We provide well-rounded advice to solve both legal and financial issues and to come up with creative solutions. We use modern technology to deliver legal services in a more efficient and client-focused manner than was previously possible.
We provide personalized and compassionate service. We believe that each client’s matter is the most important matter in the world to them, and we strive to treat it that way.