Small Business Bankruptcy Attorneys in Middlesex County, New Jersey

Small businesses form the backbone of our economy. Now more than ever, they face tremendous struggles to survive. Many small business owners find themselves deep in debt, unable to pay their bills. Inventory and supplies require cash payment on delivery when vendors will no longer accept credit or payments on accounts. Payroll is impossible as is keeping up with taxes. Even if you are the business’s sole employee, you lack the money to pay yourself.

Small business owners are inherently risk-takers. More than anything, they do not want to accept defeat. Bankruptcy may be the opportunity they need to climb out of debt and keep their doors open for business.

If you’re a small business owner struggling with debt, let the attorneys at Schwartz, Hanna, Olsen & Taus, P.C. help. We have a combined 80 years of experience among us, and we are each dedicated to working directly with our clients in the New Jersey areas of Somerset, Morris, Passaic, Essex, and Bergen Counties, and anywhere else in the state.

What Are the Major Considerations in Filing a Small Business Bankruptcy?

There are two major aspects to consider when you are exploring bankruptcy options for your small business. The first is how your business is legally structured. Your options will vary depending on whether you are a sole proprietor, partnership, or limited liability company (LLC). The structure of your business and whether your goal is to remain open or close will determine which bankruptcy chapter you file.

The second major consideration is devising a plan that will allow your business to be successful moving forward. Bankruptcy will stop creditor actions such as foreclosure, eviction, harassment, and filing a lawsuit to obtain a judgment against you. However, when you stop those activities, you must plan for how you will operate your business successfully when the bankruptcy is complete.

Is Chapter 7 Bankruptcy Right for My Small Business?

A Chapter 7 bankruptcy is a “liquidation bankruptcy” because it discharges all non-exempt debt. A trustee liquidates your assets and uses the proceeds to pay off creditors. Unless you are a service provider with only human resources rather than equipment and inventory, Chapter 7 is unlikely to keep your doors open.

Chapter 7 works best for sole proprietors where the line is blurred between personal and business assets and income. You will file for bankruptcy personally and can take advantage of keeping exempt property, such as your home, so long as you continue paying the mortgage.

Partnerships and LLCs can file Chapter 7; however, they cannot discharge business debt. If the business lacks the assets to pay off the business debt once liquidated, the individuals are responsible for paying it off, usually through personal bankruptcy.

Chapter 7 eligibility requires meeting a “means test” that establishes that your income is insufficient to pay your routine living expenses as well as pay off debt. Fail to pass the means test and you will be looking for other bankruptcy options.

Is Chapter 11 Bankruptcy Right for My Small Business?

A Chapter 11 bankruptcy restructures debt and ongoing financial operations. If you associate Chapter 11 with major corporations and airlines, there is a reason why. Chapter 11 is laborious and expensive, which makes it a less viable option for small businesses.

Chapter 11 is designed to give companies time to figure out how they will be profitable after bankruptcy. They examine which assets they can sell, how to restructure their human resources, and how to increase their profit margin, among other things.

Chapter 11 can discharge restructured debt when the plan is approved rather than completed. It also allows you to continue running the business and use the business’s disposable income to keep it up and running. The complexities and expenses of Chapter 11 are why few businesses of any size file it.

Is Chapter 13 Bankruptcy Right for My Small Business?

Chapter 13, like Chapter 11, restructures your debt, although the process is much less cumbersome and costly. It is, however, only an option for sole proprietors who file for bankruptcy as individuals.

Chapter 13 does not require the liquidation Chapter 7 does, and it protects assets such as your home or vehicles because you continue to pay on the debt rather than discharge it. While this is a positive aspect of Chapter 13, it is also problematic for some businesses. If you need to keep equipment for your business for which you owe money, for example, you must have enough income after living expenses to pay on the debt. Furthermore, the repayment plan can only be for five years which can make Chapter 13 unrealistic for keeping your business open and getting out of debt.

Chapter 13 does allow you to discharge certain debt you cannot in Chapter 11, such as credit card debt, medical debt, and unsecured loans. Plus, it may let you keep the lights on in your business.