How to File for Bankruptcy as a Business

Just like individuals, businesses fall victim to financial difficulty. If you feel bankruptcy is the only option for your business, these suggestions can help guide you through the complicated procedure of filing for a business bankruptcy.

Difficulty: Challenging

Instructions

Things You'll Need:

• Court Approved Bankruptcy Forms
• Federal Bankruptcy Rules

1. Although it is not mandatory to be represented by an attorney when filing bankruptcy, it is wise to at least consult with a lawyer familiar with the U.S. Bankruptcy Code since bankruptcy law is complicated. To file for business bankruptcy, a debtor must file specific forms with the Bankruptcy Court. If the exact forms with accurate information, such as assets and liabilities, are not included in your paperwork, your business may lose the protections and privileges afforded to debtors who file bankruptcy. A lawyer, designated by the recently revamped Bankruptcy Code as a "Debt Relief Agent" can help ensure your business enjoys the protections of bankruptcy as long as necessary to reorganize or liquidate your business. The Bankruptcy Code specifies under what conditions it permits a business to file a liquidation-type bankruptcy, known as a Chapter 7, or a business reorganization, known as a Chapter 11. Liquidation is also possible under Chapter 11, although that is a fairly rare occurrence. Incorporated businesses cannot file a Chapter 13 reorganization bankruptcy, a type of bankruptcy reserved for individual or married debtors, unincorporated businesses or people who are self-employed.

2. Businesses have two options in bankruptcy: reorganize or liquidate. You will need to discuss which option is right for your business with your lawyer and accountant. Reorganization allows your business to work out a plan to pay your business’s debts. Liquidation is used when a company is going out of business. Their debts exceed their assets, so they request the Bankruptcy Court discharge, or erase, as many debts as possible. In other words, reorganization allows your business to continue operating while the company pays its debts based on a court-confirmed repayment plan but liquidation relieves the business of its assets worth more than the Bankruptcy Code allows. Since the liquidated business won't have the many assets necessary to help them continue operating, they cease operation.

3. Review and prepare your records. You will need to provide your attorney with information about each of your creditors, such as their address, your account number, the type of debt (unsecured or secured), the amount due and co-debtors, if any. If you forget to include a creditor in your bankruptcy petition, you may be permitted to amend your petition to include them later, but that will cost you additional court costs and likely more attorney fees, too.

4. When your business is ready to file for bankruptcy, you (or your lawyer) will file a petition and accompanying documents with the Bankruptcy Court having jurisdiction over your case. When a bankruptcy petition is filed, an “automatic stay” goes into effect immediately, if the business has not had a bankruptcy dismissed within the last year. Under the revamped Bankruptcy Code, the automatic stay lasts only 30 days from the time of filing if your business had a bankruptcy dismissed within the last year. If your business had two or more bankrupties dsmissed within the last year, the business bankruptcy does not receive an automatic stay at all. That means creditors can come after your business seeking repayment of their debts as if the bankruptcy had not been filed.

5. When a Chapter 7 bankruptcy is filed, the Court appoints a bankruptcy trustee to oversee the case. If you opt to reorganize your business under a Chapter 11, a trustee is not appointed. Instead, the company's management team oversees the reorganization as a "debtor-in-possession" (DIP). If the creditors do not believe the DIP is managing the reorganization in a profitable manner, it can ask the Bankruptcy Court to intervene and replace the DIP.

6. After a bankruptcy petition is filed, your business’s assets will be either liquidated or reorganized to pay creditors the debts owed them. When the bankruptcy proceeding ends, and the presiding Bankruptcy Court issues a Discharge, debts included in your bankruptcy that were dischargeable are no longer owed and treated as if they never existed.

Tips & Warnings

• Filing for bankruptcy is complex, time-consuming and often emotional. While it may be expensive to hire an attorney, it may end up costing you more in time, frustration and mistakes if you try to represent yourself in your company in its business bankruptcy. Contact your local or state bar associations for the names and phone numbers of reputable bankruptcy lawyers in your area.
• This article does not constitute legal advice. The content of this article is for educational and entertainment purposes only. Should you have any specific questions or concerns, contact a lawyer in your area.

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