Denver Business Owners
Help from a Denver Bankruptcy Lawyer
Is your business is in financial trouble? Wondering whether bankruptcy is necessary or helpful for your situation? The only way to find out is to speak to a Denver bankruptcy lawyer who specializes in business bankruptcies.
While business’s can file bankruptcy in their own right, most business owners personally guarantee their debt, which necessitates the owner to file for bankruptcy, not the business. Business’s do not receive discharge, only people.
The individual owner may file a Chapter 7, Chapter 11 or Chapter 13 bankruptcy (if the debt limits are met).
Should the business be reorganized or liquidated?
You need to know what has caused the problems the business now faces in order to determine if the prospects for change are high enough. Bankruptcy can’t create a market or increase revenue, but it can free up cash from paying old debt to finance current operations. Bankruptcy can also make it easier to reject leases or contracts that are no longer advantageous. It can also prevent the loss of assets or cash to creditor collection actions.
In a Chapter 7, a Chapter 13 or Chapter 11 bankruptcy, you could sell the business as a going concern or re-allocate assets. The resulting profit could pay non-dischargable debt in a bankruptcy such as taxes or unpaid salaries. The bankruptcy could then be converted to a Chapter 7 bankruptcy, or dismissed if bankruptcy protection is no longer needed.
Is any of the business debt “secured”?
The division of debt between “secured” and “unsecured” guides what reorganization can do for your business. “Secured debt” is a creditor’s claim that is secured by a lien of some type in your property, either by your agreement or involuntarily, such as with a court judgment or taxes.
Secured debt can be avoided or “stripped down” to the current value of the purchased goods in Chapter 11 and 13 bankruptcies. Creditors with purchase money security interests in goods with lower value almost never file a lawsuit to enforce their interest in the goods.
An IRS tax lien gives the IRS a lien on all of the taxpayer’s real estate and personal property. It can be eliminated in Chapter 13 bankruptcy if there isn’t any equity in the property. But tax liens can even reach retirement savings and 401(k) plans that are beyond the grasp of other creditors.
With SBA loans, the borrower gives the lender a security interest in all the borrower’s personal property. This is called a “blanket security interest” because the lien “blankets” all the borrower’s assets. Even things like accounts receivable can be covered by a blanket security interest. The agreement may also give the creditor a lien in assets purchased after the security agreement is signed.
Chapter 11 Bankruptcy reorganization requires a significant time commitment on the part of owners and managers. The “bankruptcy bargain” is that, in exchange for stopping collection of debts and other bankruptcy protections, you provide full disclosure of your company’s financial condition to creditors and the court, both at the beginning of the case and on a monthly basis thereafter. A reorganization can drain an already stressed business, because management personnel must take time to participate in bankruptcy proceedings.
In most cases the business can start up again after a liquidation of the current business. Businesses that require little capital, have few assets, or are really just extensions of the owner’s skills and personality are ones that it may not pay to reorganize. The owners may be better off liquidating the business, in or out of bankruptcy, and starting over in a fresh business entity. This is a simple task, but requires good professional advice to do correctly.
- A Chapter 7 may be the best choice if:
- THE BUSINESS HAS NO FUTURE
- THERE ARE NO SUBSTANTIAL ASSETS OR QUALITIES THAT CANNOT BE REPRODUCED, OR
- THE DEBTS ARE SO OVERWHELMING THAT RESTRUCTURING THEM ISN’T FEASIBLE.
Deciding whether bankruptcy is appropriate for your business may be one of the most difficult decisions you’ll ever make. But having information about what could happen to you and your business in the bankruptcy process can help.
Pick up the phone and contact us at (303) 893-0833 today to receive a free consultation.