Business Bankruptcy

When a business is floundering in excessive debt, filing for bankruptcy may be the last resort option. Bankruptcy is the legal process that releases the business from the obligation to pay all or some of its debts.

While different chapters of bankruptcy law under the Federal Bankruptcy Code often have separate procedures, Chapters 7, 11 and 13 are all designed to help businesses deal with insolvency. Chapter 7 allows businesses to choose a complete liquidation (available to all types of businesses), while under Chapter 11 or Chapter 13; a business sets up a repayment plan and undergoes reorganization.

To take advantage of a complete liquidation under Chapter 7, the business must close its doors and allow the bankruptcy court to liquidate all assets to pay debts. A business choosing the repayment plan under Chapter 11 may remain open. An individual who operates a business as an unincorporated sole proprietor (other than stock and commodity brokers) can use Chapter 13 of the Bankruptcy Code to repay debts, but only by filing as an individual, and including the business-related debts for which he is personally liable.

Half of all businesses filing for bankruptcy choose Chapter 7 (liquidation), while the remaining half chooses other chapters of the Bankruptcy Code, such as Chapter 11, which provide for reorganization. In business reorganization, debt is readjusted, full or partial payments are made. The business may be given up to six years to repay its debts, and the business survives in some form. Corporations and partnerships typically reorganize in Chapter 11, family farms in Chapter 12, and an occasional municipality or utility district in Chapter 9.

With bankruptcy reform enacted in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the decision to file bankruptcy is more complicated than ever. And, while bankruptcy is a federal court process, the state of Texas also has separate applicable codes. When you are contemplating bankruptcy to resolve the indebtedness of your business, consulting a bankruptcy attorney is essential. Expert legal guidance helps you to evaluate business finances, view all options and to arrive at the right choices when considering bankruptcy.

At Bailey & Galyen, our Texas bankruptcy attorneys will be glad to answer your questions regarding business bankruptcy. We will explain how the new bankruptcy law applies to your business and assist you in evaluating the legal options most suited to the financial circumstances of your operations.