The idea of bankruptcy in Athens is daunting to many people, but for many, it could be the best decision you make to improve your financial future. If you are currently behind with bills, debt can snowball into a vicious cycle. You pay interest and late fees, while your payments never reduce the underlying debt. Creditors are calling and the stress is mounting. Bankruptcy offers a way out of the cycle, giving you a clean slate

However, when you own a business, your situation is slightly different. You do not simply leap into bankruptcy without looking when a major asset in your case is the company, depending on how it is organized. Your personal interests are intertwined with those of the business, and you want to know how Chapter 7 or Chapter 13 could impact both. When your intent is that the company continue, there are crucial factors to consider.

Considering the implications for yourself and the business, it is essential to retain experienced legal counsel for assistance. You will need advice on your options and guidance with making wise decisions, as well as filing documents and going to court. Your Athens, GA, bankruptcy attorney will handle the specifics throughout the proceedings, but you should review how bankruptcy in Athens can help you save your business.

How Chapter 7 Bankruptcy Works

Chapter 7 of the US Bankruptcy Code is known as discharge bankruptcy, in which you can eliminate all debts if you qualify. The eligibility rules are strict and based on your income. If your earnings fall below the state median income level, you automatically qualify. You could still be eligible under the Means Test, however. Your income is reduced by the value of your important monthly bills, giving you a second chance to qualify.

An important aspect of Chapter 7 is the bankruptcy trustee’s power to liquidate your assets, which could affect your business. In an attempt to pay back at least some of the debt you owe creditors, the trustee will sell assets that will bring in a profit. However, you can apply for Georgia bankruptcy exemptions to protect some assets. For instance, an individual can exempt up to $21,300 of the equity in their home.

There are also some additional points to note about Chapter 7 and saving your business:

Personal Guarantees: If you signed a personal guarantee on behalf of your business, the debt belongs to you. It can be discharged in Chapter 7, but you must understand how eliminating the personal debt could impact the company and the details of the personal guarantee.

Type of Business: Almost without exception, Chapter 7 is only wise for business owners in a sole proprietorship. In this process, you and your business are treated as one. You can discharge personal and business debt and apply exemptions to your assets and the company’s. Because of the liquidation aspect, Chapter 7 is best for sole proprietors in service-based businesses.

Keeping Your Business: With the right strategy, you can save and continue running your sole proprietorship business in Chapter 7. With LLCs, corporations, and partnerships, you own shares and are separate from the company. You cannot discharge any debt of these entities through your own Chapter 7 case.

Background on Chapter 13 Bankruptcy

If you do not qualify for Chapter 7 under the income rules, Chapter 13 may be your only option for bankruptcy. This type of bankruptcy is only available for individuals, not businesses, but eligibility is relaxed. The key criterion is that you need to have a job or some other source of income. The other crucial difference from Chapter 7 is that there is no liquidation in Chapter 13, so the bankruptcy trustee has no authority to sell your assets.

With Chapter 13 bankruptcy, you pay creditors some of what you owe through a debt repayment plan. This plan is based on what you can afford to pay, so being employed is a requirement. Your debts are combined into a single monthly payment, which you pay over a period of 3 to 5 years. At the end of the case, you usually pay a fraction of what you owe. In addition, Chapter 13 discharges all qualifying, unsecured debt.

When reviewing how you can save your business in Chapter 13, consider the following:

Sole Proprietorships: Once again, Chapter 13 offers the most benefits if you own your company as a sole proprietor. Both personal and business debts can be part of your debt repayment plan, and they can be discharged at the end of the process.

Personal Guarantees: If you signed a personal guarantee for a lease or loan on behalf of the business, the obligation is not triggered until the company defaults. Once this happens, it becomes your personal debt that can be discharged in Chapter 13. However, the business is still on the hook.

Cram Down for Secured Debts: These debts are not usually dischargeable in bankruptcy because the creditor can always pursue its security interest in the asset to get paid. You may be able to “cram down” the value of a secured asset of a sole proprietorship, reducing the balance due to the property’s value.

General Advantages of Bankruptcy

There are many ways Chapter 7 and Chapter 13 can help you save your business, but you should also be aware of how they affect you personally. Bankruptcy can change your life for the better in many ways.

• Immediately upon filing your bankruptcy petition, the bankruptcy court sets an automatic stay on any collection activity by creditors. You no longer stress about phone calls, a possible debt collection lawsuit, wage garnishment, foreclosure, and other efforts.
• Before filing and during your bankruptcy case, you must complete two credit counseling and debt management sessions. You will learn a lot about responsible management of your finances, helping you avoid getting into debt problems in the future.
• It is true that bankruptcy stays on your credit report for 7 years in Chapter 13 and 10 years in Chapter 7. However, you should consider how long it would take to pay off all debt and the interest and late fees that continue to accrue. For many individuals, it could take decades to eliminate debt.
• Bankruptcy is a clean slate for you and your business if you apply the right strategy. You can begin to rebuild credit right away.

What NOT to do Before Filing for Bankruptcy in Athens

Bankruptcy is one type of legal matter where preparations and related considerations are important before starting your case. One issue is failing to do the pre-filing credit counseling, which may seem minor but could delay the proceedings. Other examples of what not to do before filing Chapter 7 or Chapter 13 include:

• Transferring assets to people you know for less than fair market value, which could be a fraudulent transaction;
• Cashing in retirement to pay creditors since your ERISA funds are exempt;
• Purchasing new, luxury items or taking expensive vacations; and,
• Taking out new loans or lines of credit.

Brief Description of Chapter 11 Bankruptcy in Athens

Chapter 11 is another type of bankruptcy that can alleviate debt, but it could be an option to consider when your business is struggling. Chapter 11 is loosely similar to Chapter 13, except it is geared toward businesses. The objective is to help the company restructure debt and finances to create a plan that the filer, creditors, and the bankruptcy court agree will help the business continue to operate.

Unlike other types of bankruptcy, Chapter 11 does not hand over control of the company to a bankruptcy trustee. As an owner, you operate the business as a debtor in possession. You are in the best position to make the most of getting profit out of your company, and all parties want that to happen.

Note that Chapter 11 is often one of the most time-consuming, costly options for bankruptcy. Carefully consider Chapter 7 and Chapter 13, and consult with an experienced Georgia bankruptcy lawyer for guidance before filing.

Getting Legal Assistance

Filing bankruptcy is already a complex process, and it is further complicated when you own an interest in a business. You must choose the right fit with Chapter 7 or Chapter 13 since they affect your personal debt differently. Having a Georgia bankruptcy attorney on your side ensures you leverage the benefits and helps develop a strategy to help you save your business. You can also count on assistance with:

• Collecting and organizing all financial documents on assets, debts, and income for you and your company;
• Preparing and filing the bankruptcy petition and attachments;
• Guiding you in developing a Chapter 13 debt repayment plan, which must be filed with the petition or within 14 days thereafter;
• Assisting with exemptions to protect important assets;
• Attending the creditors’ meeting with you, in which you will be questioned about your finances and information on your bankruptcy petition; and,
• Handling the final stages of the case, including obtaining the discharge order from the bankruptcy court.

Contact an Athens, GA, Bankruptcy Lawyer to Learn More

It is reassuring to know how bankruptcy in Athens can help you save your business, but you can see how these cases are much more complicated. You will need guidance from a Georgia bankruptcy attorney to make important decisions, file essential documents, and assist with all process stages. For additional details, please get in touch with Morgan & Morgan, Attorneys at Law, P.C. We can set up a free consultation to review the circumstances for you and your business.

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