Tag Archives: Chapter 11

Do I Need a Chapter 11 – Small Business Bankruptcy?

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A Chapter 11 bankruptcy filing is used to reorganize a business that you may want to continue to operate after the U.S bankruptcy court is finished. Chapter 11 may or may not be the best resolution for your business.

If you are running a small business and considering chapter 11 Business Bankruptcy, your business is likely organized as either an LLC (Limited Liability Company) or an S-corporation. There is a reason for these designations. It means there is not supposed to be any personal liability to you, above what you have already invested in the business. If somebody sues the business, and you have followed organizational and corporate rules, your personal assets should not be at risk. Think of it this way. If you own stock in IBM and somebody sues IBM, they don’t get to take your personal assets, just the value of your stock.

The same laws that protect IBM, also protect you from liabilities of your LLC or corporation. As long as you have not signed a personal guarantee and have followed the corporate or organizational rules, a creditor should not be able to sue you personally. Over the years the courts have established some exceptions to this rule making it easier to pierce the corporate veil. If you think you might have personal liability from your s-corp. or LLC, you should schedule a free consultation with an experienced bankruptcy attorney here.

If you are confident you do not have personal liability, it is important for you to delineate personal form corporate debt. If the debt belongs exclusively to your LLC or S-Corp. and there are no corporate assets to satisfy it, the creditor has no right to execute on your personal assets. The creditor is simply out. This is why we pay interest to borrow money. Sometimes the debt cannot be repaid and the lender is left holding the bag.

If a creditor is unable to collect against an LLC or an S-Corp, there may not be a need for a formal chapter 11 declaration that the LLC or S-Corp is not paying the debt. It may be as easy as not paying. However, there are many things that will need to be done to make sure you are not exposed to personal liability. It may also be the case that you need a personal bankruptcy to disclose the corporate debt and protect your personal assets. It is better to be safe than sorry. GET FREE HELP TODAY, by scheduling a free consultation with a great bankruptcy lawyer.

Can Anyone File Bankruptcy?

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In a manner of speaking, yes, anyone can file for bankruptcy. What chapter of bankruptcy you qualify for depends on your specific situation. In October 2005, a massive change took place in the U.S. bankruptcy code. Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) as a response to the belief that too many people were taking advantage of Chapter 7 bankruptcy. The result of this new law is to force people who can afford to repay some of their debt to file for bankruptcy under Chapter 13 instead of Chapter 7.

Chapter 7:

In a sense, anyone—even businesses—can file for Chapter 7 bankruptcy protection. There are no minimum or maximum debt limits to be concerned with. However, before you can file a Chapter 7 bankruptcy you must be able to pass the infamous Means Test. The Means Test is used to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the bankruptcy code. If there is a presumed abuse, the case must either be converted to a Chapter 13 or it will be dismissed. Most people who cannot file a Chapter 7 bankruptcy because their income is too high end up filing for Chapter 13.

Chapter 13:

There are a few key limitations about who can file for Chapter 13 bankruptcy. For one, businesses are not able to file a Chapter 13 bankruptcy. Additionally, neither can people with too much debt. Currently the debt limits are $1,081,400 in secured debt plus $360,475 in unsecured debt (taxes whether dischargeable or non-dischargeable are included in the unsecured debt limit calculation). If you make too much money to pass the means test and have too much debt to file a Chapter 13 there are still some options for you.

Chapter 11:

In rare cases a person must file a Chapter 11 because they cannot file either a Chapter 7 or Chapter 13 bankruptcy. If a person does not pass the means test because they make too much money and they have too much debt to file a Chapter 13 then they must file a Chapter 11. Because a corporation cannot file a Chapter 13 bankruptcy if they are looking to reorganize their debt they must file a Chapter 11.

Contact our law firm to see what chapter of bankruptcy will best help you.

Ch. 13 vs. Ch. 11

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There are many similarities and many differences between Chapter 13 and Chapter 11 of bankruptcy. Chapter 13 bankruptcies are available for individuals and sole proprietorships but not corporations. Chapter 11 bankruptcy is available for businesses and individuals with very large amounts of debt.

Why would an individual file a Chapter 11 instead of a Chapter 13? Typically it is because the filer is exceeds the Chapter 13 debts. Currently the debt limits for Secured debt are $1,081,400.00 and $360,475.00 for unsecured debt (please note that these limits are adjusted periodically for inflation). Secured debts connected to some kind of a property. i.e., a home, car, boat, land, etc. These debts are considered “secured” because should you stop making payments on the loan, the lender can seize the property connected to the loan. Unsecured debts are not linked to any kind of property, and include student loans, credit cards, medical bills, and payday loans. These debts are considered “unsecured” because the lender cannot repossess or foreclose a piece of property if a borrower stops making payments.

So for individuals who have invested in several pieces of real estate, you may not be eligible to file a Chapter 13. For instance if you purchased 5 investment property at $250,000 each, then you have at least $1,250,000 in debt and cannot do the Chapter 13. Likewise, if you are someone who has a large amount of medical bills, credit card debt, student loans, and/or IRS debt then you will not be able to file a Chapter 13 if it totals more than $360,475.00. But don’t worry, if you are an individual who is not eligible for a Chapter 13 you may qualify for a Chapter 7 or Chapter 11 bankruptcy.

Judge Rejects Charitable Pledge Claim in Bankruptcy Case

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What happens if you’ve made a charitable pledge to a non-profit organization and then find yourself in a financial position where you need to file for bankruptcy? Can that charitable organization hold you to that pledge – even filing a claim in bankruptcy court for the amount you pledged to give?

That’s exactly what St. Joseph’s Foundation did. They filed a claim against a supermarket chain that had pledged $25,000 per year for 10 years to the foundation, but then filed for Chapter 11. The foundation’s argument was that the chain received benefit from the pledge with all the free media exposure and community goodwill when the pledge was announced. Bashas’ Inc. made the pledge in 2006 and filed for bankruptcy in July 2009. St. Jospeph’s was looking for $155,000, the amount they said the chain owed up until September 2009.

Other debtors objected to the claim and the bankruptcy court rejected it, calling it an “unenforceable charitable pledge”. A federal district court judge affirmed the decision. The foundation filed an appeal with the 9th U.S. Circuit Court of Appeals, but while the appeal was pending, both parties worked out a $50,000 settlement. According to a report in Thomason Reuters News & Insights, no debtors objected this time, but the bankruptcy court rejected the deal, stating that it was “neither fair nor equitable to the debtors’ estate and their creditors.” Returning back to federal district court, the same judge again affirmed the bankruptcy’s court decision, saying “the probability of St. Joseph’s success in the litigation is near zero.” The judge went further to state that “Bashas’ suffers the injustice here for having to waste limited resources defending itself against an exercise in avarice.”

This is an example of why you should not try to file for bankruptcy yourself. If you are considering filing, you should hire an experienced Arizona bankruptcy attorney to protect you and your estate against claims such as this one.

Hostess to Shut Down Operations

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According to the Wall Street Journal, Hostess, “the company behind treats snacked on for generations, is poised to present to a federal bankruptcy judge a plan to shut down 36 plants and sell off the company’s business.” The announcement was made, according to the Journal, after the company’s second-largest union orchestrated a strike that resulted in a shutdown. The shutdown, Hostess announced, “would result in the loss of more than 18,000 jobs and place the fate of more than 30 American brands in jeopardy.” Union president Frank Hurt told the Journal that he “believed there was more than a good chance that a buyer quickly would swoop in to buy the profitable parts of the company and give his union’s members their jobs back.”

Yet Hostess CEO Greg Rayburn told the Associated Press, as reported in AZ Central, that there was no buyer waiting in the wings to rescue the company. Hostess is based in Irving, Texas and originally filed for Chapter 11 protection in January 2012. Yet, unlike many of its competitors, according to AZ Central, “Hostess had been saddled with high pension, wage and medical costs related to its unionized workforce.”

The shutdown isn’t only affecting the company and its workers: according to the East Valley Tribune, “the Twinkies shelves are quickly emptying across Arizona after Hostess announced it was going out of business.” Yet it’s more than cake and icing for the company’s 18,500 workers across the nation, according to KPHO Radio. There are roughly 500 bakery outlet stores across the country as well, which means that about 20,000 people are facing layoffs.

Corporate bankruptcies can lead to personal bankruptcies, and the closing of a corporation as large as Hostess will affect many across the country. If you or someone you know is facing bankruptcy, don’t go through it alone. Contact a dedicated Arizona state bankruptcy attorney today.

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