Businesses of all sizes often face the unavoidable prospect of failure. Though particular to small businesses, the risk of not being able to service debts and keep the business afloat cuts across all types of businesses, especially in the wake of the COVID – 19 pandemic.
In such cases, business owners should consider filing for bankruptcies specific to their situation. This requires the business owner to consider the bankruptcy options best suited for their business, as filing for bankruptcy may not always be the right call. However, filing for bankruptcy might just provide the relief required. Should your business choose to file for bankruptcy, the following paragraphs outline the best options available to you:
What is Bankruptcy?
Business bankruptcy in Scottsdale, Arizona is defined as a series of legal and financial processes which are initiated when a business defaults on its ability to service debts and maintain full operational ability. These processes are varied, each with its own corresponding consequences and resolution methods. These processes are also handled in federal courts with the business owners, and decisions are made at the discretion of an appointed bankruptcy judge. It must be stated that the process does not absolve the filer of any financial duties or commitments as the entire process is administered by a trustee.
Types of Business Bankruptcy
Choosing the right type of bankruptcy in Scottsdale, Arizona to file can sometimes prove to be a tedious task. There are a couple of factors involved that may sway your decision but a careful perusal of the following types can guide you to filing just the right bankruptcy claim for your business. For small businesses, there exist three types of bankruptcies that can be filed based on the US bankruptcy code. The types are Chapter 7, Chapter 11 and Chapter 13. They are explained below:
Chapter 7: Liquidation
This form of bankruptcy is available to all forms of businesses regardless of their size. It signifies the stopping point or the eventual end of the business, and it makes up more than 70% of the bankruptcy filings for small businesses.
This form of bankruptcy is best suited for businesses with no means of servicing debts and keeping the business afloat comfortably.
The goal of this form of bankruptcy is to erase debt but this can also incur the loss of valuable assets. Chapter 7 dissolves completely the business and its leadership, all employees are laid off immediately and a trustee is appointed by the court to oversee the liquidation process and to ensure the benefit of its existing creditors
Businesses filing for Chapter 7 bankruptcy shall prove that income is relatively low enough to qualify for the claim. This is known as the “bankruptcy means test”. This is done to prevent sustainable businesses from abusing the system and clearing out outstanding debts. In the event of the availability of owing creditors, the trustee is empowered to split these assets and shared across creditors, with the exemption of assets that may fall under the US bankruptcy exemptions.
This form of bankruptcy is mostly used by business owners who intend to settle creditors. Once this has been achieved in earnest alongside fees for trustees, the owners receive a discharge which means they are now free of the business debt. However, this discharge has few exemptions such as personal guarantees on loans.
Chapter 11: Reorganization
This form of bankruptcy keeps the business in operation but helps in the reorganization of its existing debts. This option favors businesses not yet at the liquidation stage but possess the ability to continue operation with the assistance of the Federal bankruptcy court.
The eligibility requirement in this case is the generation of regular income or revenue from the business of concern. This involves a submission of debt reorganization and repayment plan to the court, pending the approval of the judge and the creditors before the plan is implemented. The idea behind this form of bankruptcy is to maintain operational capability of the business, provide a negotiating platform between business owners, extensive debt repayment periods as granted by the courts and enable the business become profitable over a period of time. This is used by larger scale businesses.
Chapter 13: Reorganization / Debt Repayment Plan
This form of bankruptcy provides debt ridden businesses with the opportunity to reorganize business debts and avoid liquidation at a much cheaper rate. The form is mostly used by consumers, but it extends also to businesses operated as sole proprietorships.
For sole proprietors, the bankruptcy must be filed under your name and not that of the business. Despite the discrepancies between personal and business debts, the trustee treats both the same, thus the court takes into cognizance all expenses, personal and business alike and with the type of income shall determine the debt repayment process. The advantage is that the business can still be in operation.
The qualification requirement is that the business owes a limited number creditors and must not exceed the dollar set limit of unsecured and secured debts (the numbers are subject to change periodically).
A reorganization plan must also be submitted to the court and approved by the judge and creditors before the plan takes effect. However, if there is a default in the repayment of these debts, a different form of bankruptcy can be initiated depending on the situation of the business at that particular time.
Filing for bankruptcy in Scottsdale, Arizona should be a well thought out process and should entail a proper understanding of the intricacies involved. Carrying out the process properly can prove to be a relief for the business, and a strain if done otherwise.
However, if you require such legal services and you are in dire need of a proper bankruptcy assessment and filing process. Look no further, especially if you are in Scottsdale Arizona. Contact RLG Legal group now and get it done seamlessly. They are seasoned bankruptcy attorneys and one of the very best Scottsdale has to offer. The services offered are broad, but they take the lead in business bankruptcy.
Business Bankruptcy Attorney Near Me
If you are in the Scottsdale Arizona Area, and you require top notch legal services regarding business bankruptcy, or you require competent business law attorneys, check out RLG Legal Group. They provide the best and most affordable bankruptcy and business law attorneys in Scottsdale Arizona. RLG can assist with financial situations, wage garnishments, bankruptcies, business laws, equine and ranch laws, and more, at competitive and affordable rates.