For small businesses that are in financial distress, bankruptcy can be a good option.
A bankruptcy lawyer in MD says, “Chapter 11 and Chapter 13 are two excellent restructuring approaches”.
Here are a few good reasons how Chapter 11 and Chapter 13 can help businesses.
The plans, subject to fulfilling the legal requirements, allow you to retain property so that you can continue to operate your business.
You can modify the payment terms on property mortgages or equipment loans and fulfill financial obligations that you are unable to pay over the plan term.
But here is a caveat.
To some extent, Chapters 11 and 13 are similar. But you must keep in mind that practically anyone can file for Chapter 11 bankruptcy, but small businesses are ineligible to file for Chapter 13.
Here is what Maryland bankruptcy lawyers will tell you.
Chapter 13 is only for individuals having regular income and for those that operate their businesses as a sole proprietorship. Small businesses that function as corporations or partnerships are not eligible for relief under Chapter 13.
However, any entity can file bankruptcy under Chapter 11.
Also, make note of another key difference.
In Chapter 11 appointment of a trustee is an exception rather than a rule. The court appoints a trustee only if there is sufficient justification such as fraud or flagrant mismanagement.
On the other hand in Chapter 13, a trustee is a must. They play a key role by reviewing the proposed plans and offering recommendations to the bankruptcy court on how to advance further.
According to a bankruptcy lawyer in MD, “The trustees appointed in Chapter 13 are also made responsible for collecting plan payments and distributing these to the lenders”.
If you are a small business confronted with bankruptcy, it is a good idea to consult one of Maryland bankruptcy lawyers.
They will evaluate your status and assess whether bankruptcy can provide relief to you.
Some of the things they will factor-in can include:
The legal structure of your business – sole proprietorship, corporation, or LLP
Whether you are individually accountable for business debts
Your objective – to wind-up the company or keep it running
The types and extent of debts you have
For any business owner, reaching a situation when he or she can no longer meet their monthly expenses is a worst-case scenario.
Their only option is to file for bankruptcy. But this should be an informed decision, after taking into consideration several factors.