Does Business Bankruptcy Eliminate My Personal Liability?

Northern California is filled with hard-working people. Many of those folks are small business owners. But running a small business can be a struggle, especially in a volatile economy. It is a great thing that inhabitants of the Sacramento Valley are proactive entrepreneurs. From general contractors to orthodontists, there are examples of what makes the Sacramento community great. However, when business wanes or taxes get out of hand many small business owners are left looking for solutions. Bankruptcy may be that solution.

Sole Proprietorship

Depending on the structure of the business, the owner may or may not be personally liable for the debts of the business. Sole proprietorships do not create a separate legal entity from the owner. Therefore, the business cannot file a bankruptcy by itself. The owner and business are one in the same. When the owner files Chapter 7 bankruptcy, the business does as well. Business debts and personal debts are treated the same and may be discharged. Depending on the value of the assets of the business, they may be protected by using exemptions. This may allow the owner to wipe out the overbearing debt, but still continue to operate the business.

One recent bankruptcy in the Eastern District of California was filed by a doctor whose sole proprietorship included multiple offices. One particular office was underperforming and forced him into the bankruptcy. Through the process of the bankruptcy, however, he will likely be able to shed the burden of the office that is losing money and refocus on the thriving locations.

Partnerships, Corporations, Limited Liability Companies

Unlike a sole proprietorship, a partnership is a separate legal entity. That means the partnership itself can file Chapter 7 bankruptcy. Also unlike a sole proprietorship Chapter 7, there is no discharge and no exemptions available. Therefore, if the partnership files a Chapter 7, the trustee will shutter the business and sell all the assets to satisfy the creditors. Depending on the type of partnership, the partners may be personally liable for some or all of the remaining debt after liquidation.

A Limited Liability Company, or LLC, and a Corporation are very similar for the purposes of filing Chapter 7 bankruptcy. A business Chapter 7 is beneficial because it is a fairly simple way to liquidate a business. This is mostly because the burden of selling assets and satisfying creditors is shifted to the trustee. Be warned, though: if the owner personally cosigned for a business debt, she will likely still be personally liable for that debt. In that case, the business bankruptcy may need to be followed up with a personal Chapter 7.

The Means Test

The “Means Test” is part of the Bankruptcy Code that determines whether the debtor has enough disposable income to pay back some of the creditors. Basically, the test compares the debtor’s average income during the six months prior to filing bankruptcy with the median income in the state where the bankruptcy is filed. In a business case, meaning that the debt is primarily business debt, the debtor doesn’t need to complete the means test at all. This allows a debtor who would otherwise be ineligible for Chapter 7 to qualify for one.

The Bottom Line

Small business owners know that there are ups and downs when running a business. Sometimes that means bankruptcy. In that case, it is important to consult a bankruptcy attorney who has experience with business bankruptcies, because they tend to be more complex than most personal bankruptcies. Don’t feel guilty because your business is having a rough time. Get some help and get back on your feet.

Business & Commercial Bankruptcy

Nationwide Ambulance Provider Files for Bankruptcy

Running a business at any time can be difficult and stressful. However, over the last few years, running a business has been nearly impossible. It does not take very many missed or late payments for a business to be in financial trouble. This may leave the owner with few options to get out of debt. One option is to file for business bankruptcy. This is a way for business owners to get out of debt while also allowing the owner to reorganize.

An ambulance operator, Rural/Metro Corp., filed for Chapter 11 bankruptcy protection last week. The company continues to provide ambulance services but is facing substantial debt.

Rural/Metro is based in Arizona and provides emergency services nationwide. The company missed an interest payment in July, which lowered their debt and credit rating. The company filed for bankruptcy in Delaware; they listed their assets and debts at almost $500 million.

It does not take many missed or late payments to cause substantial problems to the business, which then causes many business to face the possibility of bankruptcy. One of the benefits of bankruptcy is that all creditor actions are stopped when the business files for bankruptcy protection. This includes mechanics liens and repossessions.

Bankruptcy also allows the company to create a debt reorganization plan. In many cases, this plan will reduce interest payments. It may also reduce or eliminate penalties or fees that were accumulated under the late or missed payments.

Filing for bankruptcy protection can significantly turn the ability of the business around to allow it to continue to operate. It can provide the business owner needed relief to prevent the loss of his or her business.

Source: Buffalo Business First, "Rural/Metro to continue services after bankruptcy filing," Aug. 5, 2013


California Grocery Chain Files for Bankruptcy

Businesses face many challenges but can also reap several benefits. Business owners must manage all the issues that arise in a business such as submitting and paying for orders, hiring and paying employees, paying rent or buying the location. Business owners also get the satisfaction of being their own boss and managing it how he or she wants to manage it. But business owners can also be affected by changes in the economy. For example, the recent economic downturn has forced many business owners into business bankruptcy because they see no alternative way out of the debt they are dealing with.

A local family owned business in Northern California, Mi Pueblos, has filed for Chapter 11 bankruptcy. This grocery store chain has filed because of a dispute with a secured creditor. The chain has indicated that it is not currently defaulting on any obligations.

The grocery chain has stated that customers will not be affected by the change, and employees will still be paid and stores will remain open. The filing has just caused them to go through reorganization in order to deal with their creditor.

Filing for bankruptcy places an automatic stay on all creditor actions. It also stops all liens and repossession of business property. Filing for bankruptcy also allows the business to create a debt reorganization plan. This creates a repayment plan for the business to repay their debts to creditors and vendors. In many cases, interest payments and fees may be reduced or even eliminated.

Businesses require significant cash flow to operate and pay expenses including payroll and orders. When this is impaired by events such as a recession or business disaster, debt relief such as filing for bankruptcy may be the best option. The first step is to understand the options the business has. If they qualify, a knowledgeable professional will be able to guide them through the process efficiently and effectively.

Source: CBS SF Bay Area, "Mi Pueblo grocery store chain files for Chapter 11 Bankruptcy," Mike Colgan, Jul. 22, 2013

Business & Commercial Bankruptcy

San Jose Orchard Supply Hardware Files for Bankruptcy

Many individuals dream of owning their own business. They want the freedom to be their own boss and the ability to grow and expand at whatever rate works for them. But when there is a change in the economy, many businesses may face financial hardship. This may be so serious as to require the owner to file for business bankruptcy.

The San Jose based home improvement chain, Orchard Supply Hardware, filed for Chapter 11 bankruptcy protection recently. The filing includes a deal that may sell 60 of its 91 stores to Lowe's.

If the deal goes through, Lowe's may continue to operate the stores as a separate business while keeping the Orchard name. The agreement hinges on Lowe's winning the bankruptcy auction.

Orchard was founded in 1931. During the recession, annual sales dropped by more than 20 percent. Sales have begun to turn around but representatives from Orchard say that they remain burdened debt acquired during their spin-off from Sears in 2011.

Orchard stores average about a third of the size of Lowe's. Experts say that even if many of the stores aren't bought by Lowe's, the opening of that size real estate will be great for the market. There are many retailers that are in the market for property of that size.

Filing for Chapter 11 bankruptcy can put a stop to all creditor's actions including mechanics' liens and repossession. Bankruptcy allows a business to create a debt reorganization plan. This can allow reduced interest payments and reduced or eliminated penalties and fees.

Source: The Sacramento Bee, "Orchard Supply Hardware files Chapter11; Lowe's may buy at least 60 stores," Dale Kasler, Jun. 19, 2013

Business & Commercial Bankruptcy

American Airlines Looks to Merge to Exit Chapter 11 Bankruptcy

Running a business can be both a rewarding and difficult experience. When the economy changes, it can substantially affect a business owner's ability to run their business. Sometimes, the only way for the owner to get their company out of a tough situation is to file for business bankruptcy.

On Tuesday, a bankruptcy judge allowed American Airlines to pay a severance package to its chairman and CEO. This ruling sets the stage for American to exit Chapter 11 bankruptcy and merge with US Airways. The decision still requires the approval of American's creditors.

American filed for Chapter 11 bankruptcy 18 months ago. They also tried to negotiate with their employee unions to lower operating costs. US Airways and American announced a merger at the end of last year.

The issue holding up the merger was the severance package for the executives. The Bankruptcy Code prevents any severance package given to a CEO to be more than ten times the amount given to the average employee. Generally creditors must approve any reorganization or merger plans.

There are two types of business bankruptcy. One liquidates the business to pay off creditors. The other creates a debt reorganization and repayment plan. Both can help a business get out of a tough financial situation and can provide the business a fresh financial start, like in the case of American Airlines.

One of the major benefits of filing for bankruptcy is that all creditors actions are stopped immediately. This includes liens and repossession. A debt reorganization plan will generally decrease interest payments and penalties or fees are reduced or eliminated.

No matter the situation, if a business is considering filing for bankruptcy, they should consider their options to determine whether it is a viable option. In addition, they might qualify for various form of bankruptcy, so it is a good idea to seek out advice to understand what their best option is.

Source: The Sacramento Bee, "Bankruptcy judge removes obstacle to American-US Airways merger," Curtis Tate, June 4, 2013

Chapter 11

California Electric Car Company Files for Chapter 11 Bankruptcy

Trying to run a business is never an easy task. But the recent economic times have made this task remarkably more difficult. It does not take many missed or late payments before creditors begin harassing a business for money owed to them. In many cases, the best way to get a business turned around and out of trouble is to file for business bankruptcy.

A California-based electric car company filed for Chapter 11 protection recently. The company, CODA Holdings, filed after poor sales. They intend to get out of the auto business permanently with this filing. The company says that it will focus post-bankruptcy efforts on an energy storage business that is also under the CODA name and uses similar technology.

At the moment, a group of debtors plans to buy the company for $25 million. The company is only four years old and only has about 40 employees.

CODA is not the first electric car company to struggle financially. Only last month, an Anaheim based company laid off almost 75 percent of their work force. This company makes electric sports cars. Another company, Tesla, has yet to make a profit and the company owes the government almost $500 million in loans.

Filing for bankruptcy can put an automatic stay on creditor actions. This includes repossessions and foreclosures. Bankruptcy can allow a business time to reorganize and reduce or eliminate penalties and fees.

Companies in any type of business can experience financial difficulty. Whether due to market changes or other commercial factors, business owners in such situations should explore the possibility of chapter 11 filing, to determine if it can help save the company.

Source: The Sacramento Bee, "Electric car maker CODA files for Chapter 11," Robert Jablon, My 1, 2013


Increase in Physician Bankruptcies

Running a business can be a difficult thing, and many businesses face financial troubles at one time or another. Even businesses that some might think are immune to financial pressures can end up in financial trouble.

Some might think that being a doctor can make you immune from financial troubles, but even doctors sometimes need to seek bankruptcy protection. In fact, there has been an increase in chapter 11 bankruptcy filings by physicians recently. The economy, as well as regulations, malpractice insurance, and other costs of doing business, can combine to make it difficult for a physician's practice to survive.

One option for a struggling physician is chapter 11 bankruptcy. Using this method, it is possible to save a physician's practice. In one instance, as her solo practice was struggling, a doctor began to fall behind on state taxes. When the state tax officials came to shut down her clinic, the doctor called a bankruptcy attorney, who quickly filed for bankruptcy. As a result, the doctor's debts were restructured and her practice was saved.

So, financial troubles can affect anyone (even physicians), and one method of resolving the financial trouble is bankruptcy.

Source: CNNMoney, "Doctors Driven to Bankruptcy," Parija Kavilanz, April 8, 2013.

Business & Commercial Bankruptcy

Bankruptcy Reorganization Plan Approved for Beechcraft

Californians know that running a business can be a difficult but fulfilling profession. Entrepreneurship is what this country is built on. But with the rising costs of labor and material coupled with the slow economy, many businesses are struggling. It does not take long for a struggling business owner to quickly get behind on payments to creditors. One missed payment can quickly snowball into substantial debt. With substantial debt, business owners may turn to filing a for a business bankruptcy to solve their debt problems.

Many companies are able to emerge from bankruptcy without previously accumulated debt. This was the case for the Kansas plane maker Beechcraft. This company filed for bankruptcy protection in May. The bankruptcy also allowed the company to dump its unprofitable arm, the business jet operations. The company is now focusing on smaller planes and its military work.

The company is emerging from bankruptcy only two weeks after the bankruptcy courts approved their reorganization plan. They were able to cut their debt and get about $600 million in exit financing from their creditors. About 90 percent of the company is now owned by investment firms. The company has more than 5,400 employees at this time and is hoping that number will hold steady. A potential government contract for military planes may bring in an additional 700 jobs.

Bankruptcy puts an automatic stay on creditor collection actions. This includes repossession and mechanics liens.

The most common type of business bankruptcy if Chapter 11. Chapter 11 bankruptcy allows the business owner to create a debt reorganization plan. This allows for a reduction of interest rates and a reduction or elimination of penalties and fees associated with the debts.

Source: Sacramento Bee, "Beechcraft emerges from bankruptcy protection," Roxana Hegeman, Feb. 19, 2013

Business & Commercial Bankruptcy

California Power Company Filed for Chapter 11 Bankruptcy

The most recent economic downturn has taken its toll on businesses. Many businesses have been forced to turn to business bankruptcy to survive or move on from a failing business. Business bankruptcy is known as Chapter 11 bankruptcy. Filing for bankruptcy stops all creditors actions immediately, which includes mechanics liens.

A power wholesaler and its Chicago subsidiary filed for Chapter 11 protection on Dec. 12. The company, Edison Mission Energy, and its subsidiary Midwest Generation have close to $5 billion in debt. The company is based in Santa Ana but filed for bankruptcy in Chicago.

The companies have no plans of laying anyone off. Edision Mission cited low power prices, high fuel costs and environmental regulations as the reasons for its increasing debt.

Edison Mission Energy is owned by Edison International. The Edison Mission president says that he hopes that the company is able to pull out of the bankruptcy as a separate company from Edison International. The power company has close to 1,000 employees and owns over 40 power plants in California, Pennsylvania, Iowa and Illinois.

Chapter 11 bankruptcy allows a company to work with creditors and vendors to create a reorganization plan. In many cases, interest payments will be reduced and penalties and fees may be reduced or even eliminated.

It does not take much of an economic downturn to significantly affect a business. Only a minor change in revenue can cause an owner to juggle payments to creditors. Vendors will begin to cut off supplies, and creditors will begin to harass the owner for their debts. Bankruptcy can provide the needed debt relief for a business to continue operation or at least pay off creditors.

Source: Sacramento Bee, "Power wholesaler files for bankruptcy in Illinois," Dec. 17, 2012

Business & Commercial Bankruptcy

California Video Game Company Files for Chapter 11

In a sign of increasing consolidation in the video game market, Agoura Hills, California game publisher THQ has filed for Chapter 11 bankruptcy. THQ is known for publishing games licensed by World Wrestling Entertainment, as well as its "Saints Row" series. The company's president recently stated that in the current market, only a top handful of games are competing for consumer dollars. About a month ago, THQ's chief financial officer resigned, and the company let it be known that it was looking for financing.

Chapter 11 of the Bankruptcy Code gives a struggling business a chance to continue as a going concern, while obtaining relief from some debt. Under a Chapter 11 business bankruptcy, some of the business' debts are canceled. Typically, the company is then either sold, with the sale proceeds going to the creditors, or ownership is given to the creditors whose debts were written off. The idea behind Chapter 11 is that even a struggling business may be more valuable to its creditors as a going concern than as simply a collection of assets to be liquidated.

In THQ's case, its assets are to be purchased by a private equity firm for approximately $60 million. The sale to the private equity firm may be what is known as a "stalking horse" bid - an initial bid made by a bidder working with the bankrupt company to establish a "floor" for acceptable bids in a subsequent auction. Typically, the stalking horse bidder does not expect to actually buy the bankrupt company, but simply places the first bid in order to prevent subsequent "low ball" bids.

An industry observer has stated that THQ has some games in the works that have the potential to do well in the marketplace. The Chapter 11 reorganization may allow creditors to recover some benefit from sales of those games.

Source: Los Angeles Business Journal, "THQ Files for Chapter 11, Plans To Be Acquired," Natalie Jarvey, Dec. 19, 2012