- September 16, 2024
- Kelvin Birk
- Bankruptcy
While no one wants to have to declare bankruptcy for their business, there are times when it is your best option and can be a step toward building success in the future. Regardless of the reason – bad economic times, declining sales, increased competition, or difficulty with employees or clients — when debts accumulate, bills pile up, and you are under pressure from creditors, it may be time to turn to bankruptcy for a fresh financial start.
If you have gotten to the point where bankruptcy is your best option, there are major decisions to make. There are several ways to declare bankruptcy in Missouri, and you need to determine whether you wish to reorganize your business or liquidate its assets. Which option is right for you depends on your circumstances and the business’s financial viability, as well as the prospects for the future of your business. Making the wrong choice can be costly, so, before filing anything, it is a good idea to get guidance from an experienced Missouri bankruptcy attorney who knows bankruptcy laws and how the system works.
Missouri follows federal bankruptcy laws found in Title 11 of the United States Code. There are several different chapters of bankruptcy that can help you achieve your goals, depending on whether you want to liquidate your business and be done with it or you want to restructure your debts so you can continue to operate. Your attorney can examine your individual situation and help determine whether you should reorganize or liquidate and handle all legal requirements and paperwork so that your bankruptcy leaves you in the best position possible.
Reorganization through Chapter 11
Has your business undergone some setbacks, but you feel it has a good chance of becoming profitable again after shedding excessive debt and restructuring your operations? If this is a realistic goal, reorganization through Chapter 11 bankruptcy is probably the way to go.
Chapter 11 is the most common type of bankruptcy for partnerships, sole proprietors, and corporations that have significant assets in the business and can come up with a viable repayment plan. This plan is a contract between the debtor and the creditors, outlining how the business will operate and pay its debts in the future.
Under Chapter 11, you reorganize your finances and restructure business debts so you can pay them back according to a debt repayment plan that you can manage, and you can obtain new financing that helps you return the business to profitability. Your business remains open and you can retain possession of and continue to run it. Once you file, there will be an “automatic stay,” so creditors must cease all litigation against the company until after the business emerges from bankruptcy or it is resolved in bankruptcy court.
The restructuring process for Chapter 11 bankruptcy is as follows:
- You submit paperwork to the bankruptcy court that includes company assets, liabilities, balance sheets, reports showing profits and regular earnings, expenditures, contracts, and leases.
- You come up with a restructuring plan that shows how you will repay the creditors and meet your other financial obligations. You may be able to renegotiate or void contracts that show a potential loss, negotiate lower interest rates, downsize the business, sell off assets, or make flat payments at a reduced amount.
- The creditors review and approve the plan, and then the court approves it.
- You start implementing the plan for the reorganized business by paying creditors from business profits.
- When the plan is completed, your debts will be discharged.
The key advantage of reorganization is that your business can continue operating while restructuring its debts and operations under court supervision. Creditors are likely to go along with your plan as it allows them to recover a larger portion of their debts than if you had to liquidate.
Liquidation Through Chapter 7
Liquidation through Chapter 7 bankruptcy may be the better option if your business is no longer viable and lacks enough assets to restructure and repay debts, and there is no potential for future profitability through restructuring. An individual, a partnership, or a corporation or other business entity may be able to qualify for Chapter 7. If you are a sole proprietor, Chapter 7 will allow you to discharge remaining liability on the debts, so you do not personally owe them, but corporations and partnerships are not eligible for this discharge through Chapter 7.
When you go through Chapter 7 liquidation, a court-appointed trustee sells off all your non-exempt assets to generate cash for your creditors, who typically recover only a fraction of their debts from the asset sales. Your business ceases operations and is dissolved after the liquidation process.
Choosing the Right Path for Your Missouri Business
Is Chapter 7 or Chapter 11 right for you? The answer depends on a careful evaluation of your business’s financial situation, assets, liabilities, and future prospects. The advantage of Chapter 11 is that you will be able to retain and operate your business and your creditors will be able to receive more of what you owe, but if you do not have enough assets and your business is beyond saving, Chapter 7 may be your best option.
Additional Considerations for Missouri Businesses
There are some additional considerations you need to make. If you have employees you are concerned about, Chapter 7 usually means that your employees will lose their jobs, but if your company is large enough, they may still be able to keep working if you can sell off individual divisions to other companies. Time may also be a factor, as the liquidation process of a Chapter 7 bankruptcy can take many months.
Get Help with Business Bankruptcy Options
If you are considering filing for business bankruptcy, the good news is that there is help available. A consultation with an experienced Missouri bankruptcy attorney who can assess your specific circumstances can help you make the decision of whether reorganization or liquidation is the better option for your business.
Attorney Kelvin Birk is a Certified Public Accountant as well as a lawyer, with more than 30 years of experience in accounting and tax and business consulting. At the Birk Law Firm, we understand what you are going through and are here to help you navigate the process, so that you can decrease financial risks and increase the chances of recovering successfully.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
