When Should I File Small Business Bankruptcy in Oklahoma?

Filing for business bankruptcy is a significant undertaking. Before you can benefit from the protections that the bankruptcy process affords, you’ll need to decide whether to file for Chapter 7 bankruptcy or Chapter 11 bankruptcy.

A Chapter 7 liquidation, in most cases, will result in the winding down of a business. “Winding down” is a bankruptcy term for finishing final operations, paying out creditors, and closing the business for good. As Chapter 7 requires the liquidation (sale) of non-exempt assets, a business usually cannot survive selling its assets to pay its creditors.

Alternatively, restructuring debt by filing for Chapter 11 will usually allow a business to stay open and remain operational. The function of filing for Chapter 11 bankruptcy is to create a workable business plan to repay creditors while managing the ongoing proceeds of the business via court-appointed supervision. This plan must be negotiated with the company’s creditors and is typically enforced by the court.

A Note On Personal Liability For Business Debt

It is imperative to contact an attorney when deciding to file any bankruptcy. The structure of your business and its operations will give rise to varying degrees of personal liability for the business’s debts. Some forms of business ownership may result in substantial personal liability, such as a sole proprietorship, while others will carry very little personal liability for debts, like a Limited Liability Company—LLC. However, partnerships, corporations, and LLCs cannot file for Chapter 13 bankruptcy, which is a personal restructuring of debt. In contrast, a sole proprietor could qualify for Chapter 13.

Which Chapter Should I File Under?

Chapter 7 Bankruptcy

A business will likely close its doors as part of a Chapter 7 bankruptcy. This is because a chapter 7 bankruptcy is intended to liquidate assets to pay creditor claims. You can not both liquidate the business and stay in business. A chapter 7 is most common along with a personal bankruptcy. The filing usually includes you and you doing business as the business. This is done most times because you filed a personal guarantee for the debt of the business. An example is maybe you cosigned for the lease for the business. Along with leases sometimes business owners sign personal guarantees for any number of other business obligations. If you signed a guarantee and close the business the creditor will come after you for the debt.

There may also be instances where a creditor tries to hold you responsible for a business debt even without a personal guarantee. You find this in cases where the creditor is attempting to pierce the cooperate vail. When a creditor does this they are saying that the debt may have been in the name of the corporation but that doesn’t matter. The reason they claim it doesn’t matter is that you comingled the business assets and other activity with your own. The argument is that the corporation is nothing more than an alter ego of yourself. For a creditor to pierce the corporate vail they must bring a claim in court and prove their case.

Chapter 11 In Oklahoma

Chapter 11 bankruptcy, derived from the United States Bankruptcy Code, primarily serves as a mechanism for reorganizing the debts of businesses, although individuals may also file under this chapter. Unlike Chapter 7, which involves the sale of assets to pay off creditors, Understanding chapter 11 is crucial to getting what options you have. Chapter 11 allows debtors to retain ownership and control of their assets while proposing a plan to repay creditors over time.

The overarching goal of Chapter 11 bankruptcy is to enable the debtor to restructure its financial affairs and emerge as a viable, going concern. By providing a breathing space from creditor actions such as foreclosures and lawsuits, Chapter 11 fosters an environment conducive to negotiating debt repayment terms and developing a feasible reorganization plan.

Chapter 11 bankruptcy is usually reserved for larger businesses with large operations. It can also be very expensive given the complex nature of this kind of bankruptcy. You also need to consider whether the business is making money. A losing or closed business will not benefit from debt restructuring if there is no way to repay the debt. A profitable company facing temporary hardship would benefit most from filing under Chapter 11.

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Oklahoma Business Bankruptcy Lawyers

If your business is experiencing financial hardship and you do not know where to turn give us a call. We have extensive experience in representing clients with Chapter 7 and Chapter 13 bankruptcy cases. If your overdue debt is causing you grief, contact our Oklahoma lawyers at 918-743-2233 or visit our website. We offer free telephone consultations.