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  • What Is Business Bankruptcy?

    Business bankruptcy is a legal process that offers financially distressed businesses a framework to address their financial challenges and debts. Business bankruptcy involves:

    • Various chapters of the bankruptcy code.
    • The intervention of bankruptcy courts.
    • The appointment of a bankruptcy trustee.

    There is more to delving into the business bankruptcy and exploring its types, roles, and concepts. Let’s discuss everything related to business bankruptcy in detail.

    Understanding Business Bankruptcy?

    Business bankruptcy is a legal declaration that a business can no longer meet its financial obligations. This allows businesses to liquidate assets, relieve creditors, and reorganize their debts. There are two chapters under which business bankruptcy is filed: Chapter 7 Bankruptcy and Chapter 11 Bankruptcy.

    Filing Bankruptcy for Sole Proprietorship

    Understanding Chapter 7 Bankruptcy

    Chapter 7 bankruptcy is also referred to as liquidation bankruptcy. In this situation, the business ceases its operations, and a bankruptcy trustee is appointed to that particular business to liquidate the business assets. After the liquidation of the assets, further proceeds from the sale of the assets.

    Once the assets are completely exhausted, the remaining unsecured debts (if any) are discharged. Chapter 7 is generally selected by small-sized businesses that have limited chances for recovery. However, it is suggested to consult with a professional bankruptcy attorney about which chapter to opt for. They will guide you in the best way.

    Understanding Chapter 11 Bankruptcy

    Chapter 11 bankruptcy, or reorganization bankruptcy, allows businesses to continue their operations while they develop a strategic plan to repay creditors. Chapter 11, in most cases, is favored by larger businesses or corporations that believe they can become financially viable and stable through restructuring. It offers more flexibility and control over the process compared to Chapter 7.

    Understanding The Bankruptcy Code

    The U.S. Bankruptcy Code is the federal law that manages bankruptcy cases in the United States. It outlines all bankruptcy proceedings’ rules, procedures, and provisions, including business bankruptcies. The bankruptcy code is categorized into several chapters, each addressing different aspects of bankruptcy, such as individual bankruptcy, business bankruptcy, etc.

    Filing Bankruptcy for LLCs

    The Role of The Bankruptcy Court

    The bankruptcy court is a federal court responsible for overseeing bankruptcy proceedings. The bankruptcy courts have a significant and central role in the process regardless of the chapter under which the business entity filed the bankruptcy.

    Approval of Repayment Plans

    In Chapter 11 bankruptcy, the court must review and approve or modify the proposed repayment plan. This will outline how the business entity will repay its debts over time.

    Reviewing Filings

    The bankruptcy court reviews, approves or rejects the bankruptcy filings and ensures that all essential forms and documents are submitted correctly.

    Dispute Resolution

    Bankruptcy courts also play a vital role in dispute resolution between the debtor and creditors. The court is the forum that ensures the process is equitable and fair for both parties.

    Key Concepts In Business Bankruptcy

    To better understand business bankruptcy, learning about the key concepts is essential. It is important to understand bankruptcy, the roles of the bankruptcy trustee, bankruptcy estate, and the procedure of filing bankruptcy.

    Bankruptcy Trustee

    A bankruptcy trustee is assigned to supervise the entire process, whether Chapter 7 bankruptcy or Chapter 11 bankruptcy. The responsibility of a bankruptcy trustee is to manage the bankruptcy estate, which includes the assets of the business when the bankruptcy was filed. 

    The bankruptcy trustee also sells assets to pay off the creditors and also makes sure the process proceeds in the right approach and an orderly manner. 

    Bankruptcy Estate

    The bankruptcy estate encompasses all the assets of the business entity that become part of the bankruptcy process. All these assets are used to repay creditors. It’s also essential to comprehend that a business owner’s assets may also be included in the bankruptcy estate. However, this decision is dependent on the business structure.

    Filing For Bankruptcy

    Filing for bankruptcy is the legal and formal initiation of the bankruptcy process. It generally involves submitting important documents and forms to the bankruptcy court along with the required filing fees. 

    Once you have filed the bankruptcy case, an automatic stay is put in place. This stay is beneficial and will prevent creditors from pursuing collection actions against you.

    Types of Businesses & Business Bankruptcy

    Business bankruptcy is not limited to a specific type of business. It may involve several business structures, including Sole Proprietorships, Limited Liability Companies (LLCs), Corporations, and Partnerships.

    Sole Proprietorship

    In Sole Proprietorship, a single person owns and operates the business. In this case, the owner’s assets may be closely tied to the company, potentially impacting the bankruptcy process.

    Limited Liability Companies (LLCs)

    LLC cases differ from sole Proprietorship and are considered separate legal entities. As one individual does not own LLCs, it can affect the handling of personal assets in the case of bankruptcy.

    Partnerships & Corporations

    Businesses owned by two or more people who share profits and liabilities come under the partnership. The bankruptcy process depends on the type of business partnership, such as general or limited. On the other side, corporations are distinct legal entities with their liabilities and assets. They provide a clear separation between personal assets and business assets.

    Filing Bankruptcy for Business

    Navigating Business Bankruptcy & Chapter 13

    When business owners or entities face financial challenges, they may consider the option to file for bankruptcy. This process is governed by various chapters of the bankruptcy code, including Chapter 13, which offers for reorganizing and managing debts.

    It’s beneficial for businesses dealing with a range of unsecured debts, including medical bills, credit card bills, and personal loans. Depending on the types of business involved, whether an LLC, sole proprietorship, partnership, or corporation, the treatment of personal and business assets within the bankruptcy estate can vary.

    Key Takeaways on Business Bankruptcy

    In conclusion, business bankruptcy is a legal process designed to relieve financially distressed businesses while handling the interests of creditors. Whether a business files for Chapter 7 or Chapter 11 bankruptcy relies on its specific possibilities and goals.

    Understanding the basic concepts, the role of the bankruptcy court, and the framework provided by the U.S. Bankruptcy Code is essential for stakeholders and business owners facing financial difficulties.

    Key Takeaways on Business Bankruptcy

    Expert Guidance For Your Bankruptcy Journey

    If you’re struggling with the challenges of bankruptcy, you don’t have to go through this complex journey alone. The Pope Firm is here to provide the expert guidance and support you need to find the best solutions for your financial situation.

    Our bankruptcy law attorneys are experts in bankruptcy cases, including Chapter 7 and Chapter 13, and we’re here to help you regain control of your financial future. Don’t hesitate to contact The Pope Firm and let us help you through this difficult time.

    Other Services At The Pope Firm

    We also offer services of Debt Settlement, Business Bankruptcy Options, Stop Creditor Harassment, Payday Loan Debt Help, Stop Foreclosure, Wage Garnishment Help, and Medical Debt. Contact us today to know more about the legal services that we offer.

    If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.

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    Frequently Asked Questions

    Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.

    There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.

    Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.

    Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.

    Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.

    There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.

    What are the Differences Between Chapter 7 and Chapter 13?

    The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.

    Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.

    What Other Types of Bankruptcy Are There?

    Two other types of bankruptcy are Chapter 11 and Chapter 12.

    Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.

    Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.

    A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.

    Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.

    Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.

    How bankruptcy affects business depends upon the type of bankruptcy filed.

    Chapter 11

    Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.

    During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.

    Chapter 7

    Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.

    Chapter 13

    Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.

    When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.

    • Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
    • Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
    • Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
    • Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
    • Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.

    Declaring bankruptcy wipes out many debts, but not all.

    What Debts are Usually Covered by Bankruptcy?

    Bankruptcy can clear most unsecured debts, including:

    • Credit card bills
    • Medical bills
    • Overdue utility payments

    Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.

    What Debts Are Not Covered by Bankruptcy?

    • Child support
    • Alimony obligations
    • Those related to personal injury or death in a drunk driving case
    • Any debts not listed on your bankruptcy papers

    No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.

    What Debts May Be Covered?

    Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.

    Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.