Lexington KY Corporate Bankruptcy FAQs
Many struggling business owners have similar questions and concerns about the bankruptcy process.
At the Lexington, Kentucky-based corporate bankruptcy law offices of Bunch & Brock, we offer these answers to frequently asked questions for the benefit of potential clients who can rely on us for honest case analyses and dedicated representation. Our team of bankruptcy lawyers has represented numerous clients throughout the state, with a special concentration in central and eastern Kentucky.
What is bankruptcy?
As with consumer bankruptcy, business-related bankruptcy is governed by federal law and is designed to offer a fresh financial start. Several big-name companies have declared bankruptcy and emerged successfully on the other side, including Delta Airlines, General Motors, Sbarro’s and Eddie Bauer. Of course, many have gone bankrupt and out of business — Circuit City, Bennigan’s, Napster and Hollywood Video, to name a few. The difference comes down to whether the business was liquidated or reorganized.
What is Chapter 7 bankruptcy?
A business that finds itself struggling with debt can file for a Chapter 7 bankruptcy in much the same way as an individual, although the doors of the business must be closed upon the filing of the bankruptcy case; during the case, its assets will be totally liquidated. In many situations, this is actually the best solution and allows a business owner to start completely fresh. Under Chapter 7, a company goes out of business entirely and sells off its remaining assets, using the proceeds to pay back debts to investors as well as creditors. Secured creditors, whose loans are backed by collateral, and other low-risk investors are the ones who get repaid first. If there are not enough assets to cover what is owed, some entities such as stockholders and unsecured creditors simply do not get paid. If a secured creditor has your personal guarantee on the debt, we can advise as to the effect upon you.
What is Chapter 11 bankruptcy?
By filing for Chapter 11, a distressed business may be able to rehabilitate itself while staying largely under the control of the business owner. The owner presents a plan for court approval, which may include trimming costs and seeking new sources of revenue, while temporarily holding creditors at bay. The goal of filing for Chapter 11 bankruptcy protection, as opposed to Chapter 7, is to become profitable. Creditors have an incentive to work with the owner and make compromises, since they generally would not get better terms in a Chapter 7 action.
How common is bankruptcy?
According to Epiq Systems, total commercial bankruptcy filings nationwide during 2014 were 34,455, a 22 percent drop from the 44,083 filings during 2013. Chapter 11 business filings were 5,172 for 2014, compared to 6,598 for 2013. There were 21,211 chapter 7 commercial filings in 2014, compared to 27,662 for 2013.
Will a business bankruptcy affect my personal credit?
That depends on the type of business entity you used to conduct your business. If you did business as a sole proprietor, you are personally responsible for all of the business debts. If you operate your business as a partnership and you are a general partner, you are personally responsible for all of the business debts along with the partnership. If all of the partnership debts are not paid from the liquidation of the partnership property, the general partners remain responsible for the unpaid debt. If you are a limited partner in a business or if you do business as a corporation or a limited liability company, under most circumstances, you are not legally responsible for business debts.
What happens to my corporation if I file personal bankruptcy?
Personal bankruptcy does not affect the corporation, since the corporation is a legal entity separate and distinct from its shareholders. However, your ownership of the corporation is an asset in your personal bankruptcy case, which may be controlled by your Chapter 7 trustee. It is important to know the effect of bankruptcy upon the business before you file a Chapter 7 case.
Can a business be forced into bankruptcy?
Yes. Creditors can initiate an involuntary bankruptcy proceeding against a business. This occurs in infrequent situations when creditors are concerned that the business is squandering or misappropriating assets that should otherwise go toward paying debts owed them. The Bankruptcy Code, Section 303, states the requirements for an involuntary bankruptcy case. If a debtor company has 12 or more creditors, the involuntary petition requires (a) three or more creditors whose claims are not contingent or subject to a bona fide dispute as to liability, and (b) the creditors’ claims must total at least $15,325 more than the value of any lien on property of the debtor securing such claims held by the petitioning creditors. The next adjustment of the $15,325 dollar amount will be in April, 2016, which is likely to be higher than that amount. If the debtor has fewer than 12 creditors, the Bankruptcy Code only requires one qualifying creditor to file the involuntary petition. Also, additional creditors can join in the involuntary petition once the case is filed. See 11 U.S.C. Section 303(c).
If the debtor does not oppose the involuntary bankruptcy petition, the court shall order relief against the debtor under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case only if (a) the debtor is generally not paying such debtor’s debts as such debts become due, unless such debts are the subject of a bona fide dispute as to liability or amount, or (b) within 120 days before the filing of the involuntary petition, a custodian was appointed or took possession of substantially all of the debtor’s property.
How long does the typical corporate bankruptcy take?
A small-business Chapter 11 bankruptcy proceeding commonly takes between six months and one year in court, depending on complexity. A Chapter 7 liquidation bankruptcy proceeding can be expected to take three to four months, but sometimes longer, depending upon the situation.
Why do I need the assistance of a corporate bankruptcy lawyer?
A corporation or LLC must be represented by an attorney before the bankruptcy court. Business bankruptcy laws can be complicated and the process can be intimidating. The bankruptcy courts and trustees are not allowed to give legal advice and can provide only limited assistance in completing the extensive paperwork that must be filed. In addition, creditors may bring litigation in order to settle their claims. Therefore, it is important to have an attorney represent the interests of the bankrupt company in this court proceeding.
What areas of Kentucky do you cover?
Although our offices are in Lexington, the seat of Fayette County, our bankruptcy attorneys are pleased to serve clients located in towns and cities all across the Commonwealth of Kentucky. For more than 35 years, we have effectively represented many consumers and corporations who were in the same position as you are now. We are dedicated to providing each of our clients with a high level of personal service and effective counsel. Contact a Kentucky business bankruptcy lawyer today by calling 859-254-5522 or filling out this online form.