FAQs — Business Bankruptcy
Chapter 7 bankruptcy achieves the discharge of debt through liquidation of assets for both individuals and businesses. But while individuals look for alternative debt repayment solutions through Chapter 13 bankruptcy, and some businesses—such as self-employed individuals or individuals operating an unincorporated business—may be able to file Chapter 13, other businesses can often turn to Chapter 11 for a similar form of debt relief.
With over three decades of experience helping clients resolve their debt issues, Raleigh bankruptcy lawyer Douglas Q. Wickham and his staff at Hatch, Little & Bunn, LLP understand the hard work clients put into the development of their businesses. The law firm offers a free initial consultation to answer all questions, but the following frequently asked questions can help introduce business owners to the basics of bankruptcy.
- What is Chapter 7 bankruptcy for businesses?
- What is Chapter 11 bankruptcy?
- What is the difference between Chapter 13 and Chapter 11 bankruptcy?
- If my business qualifies for either Chapter 7 or Chapter 11, which one should I choose?
- Can business bankruptcy affect my personal assets?
- Do I need a bankruptcy attorney for the business bankruptcy process?
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Hatch, Little & Bunn, LLP has provided comprehensive legal services to individuals and businesses in Raleigh, Durham, Chapel Hill, Research Triangle Park, Wake County and throughout North Carolina from offices by the state capitol for over half a century. Our attorneys are licensed to practice before all North Carolina state and federal courts. Call (919) 899-9827 today, or contact us online to schedule a consultation with one of our attorneys about your concerns.
Chapter 7 permits qualified businesses to liquidate, using the resale value of sold assets to repay creditors fully or partially for outstanding debt. Business owners cannot continue their existing businesses after emerging from Chapter 7 bankruptcy. But they can potentially emerge debt-free, provided they have repaid all required debt, such as taxes.
Chapter 11 permits qualified businesses to continue operations, provided they have enough income to cover daily expenses and repay outstanding debt through the renegotiation of repayment terms. The legal name for this repayment is restructuring, and it most often extends the term of the debt to allow repayment over a period of three to five years. Because of the potential complexity of the process, businesses should seek assistance from bankruptcy law firms with specific experience in business bankruptcy.
Chapter 13 most commonly allows individuals to restructure their debt, while Chapter 11 bankruptcy applies to businesses. But since some businesses involve individual owners through self-employment or the operation of an unincorporated business, these individuals can potentially choose either form of bankruptcy. Bankruptcy lawyers who work with both individuals and businesses can help clients choose the right form of bankruptcy based on their unique circumstances.
In many cases, businesses qualify for either one form of bankruptcy or the other based on their ability to continue their businesses while repaying their debt. But with the help of experienced and creative bankruptcy attorneys, some businesses may be able to find solutions that allow them to stay in business even when the means test finds they cannot afford anything but Chapter 7.
Individuals operating a sole proprietorship have full liability for business debts, meaning creditors can pursue repayment from personal assets as well as from business assets. Similarly, one or more members of a general partnership can bear full personal liability for the debt of the partnership. In a limited partnership, any general partner has personal liability for business debt, while limited partners avoid this risk. A limited liability partnership typically shields all partners from personal debt, provided the state does not require at least one general partner. Corporations fully shield shareholders from liability.
Although the law does not strictly require legal support for business bankruptcy filing, few individuals can accurately handle the complex processes and reporting requirements. Particularly since many filings can affect personal assets (and making the wrong choices can prevent businesses from emerging debt-free), it makes sense to seek advice and support from an experienced bankruptcy attorney.