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Special Issues in Bankruptcy for Small Business Owners

New York bankruptcy attorney helps you restructure or discharge business debt

Recent revisions to the United States Bankruptcy Code have made it easier for small businesses to seek bankruptcy protection from creditors. In the best-case scenario, a business on the brink of insolvency can continue to operate while its debt is restructured to become manageable. Small business owners now have greater options than before. As a Queens bankruptcy lawyer, I have helped business clients with debt resolution during my more than 28 years of practice. I carefully explain the law as it applies to your circumstances and help you chart a path forward to financial recovery.

Why consider bankruptcy for your small business?

Small business bankruptcies vary widely, depending on the specific facts and circumstances. Since in most cases the business’s and owner’s finances are closely tied, the optimal goal is to keep the business afloat while avoiding the owner’s personal financial ruin. That’s why it’s vitally important to discuss your situation with an experienced attorney who is committed to crafting a strategy that’s best for your situation.

Small business reorganization under Chapter 11

Chapter 11 allows a business to restructure your its debt and continue operations. Prior to 2019, the requirements of Chapter 11 were too burdensome and expensive for most small businesses to manage. Fortunately, Congress revised the Bankruptcy Code by adding Subchapter V, also known as the Small Business Reorganization Act. Individuals or businesses with total debts of no more than $2,725,625 can benefit from the new law. The Coronavirus Aid, Relief and Economic Security Act (CARES) has temporarily raised the debt ceiling to $7.5 million. At least 50 percent of the debt must be attributable to business activity.

Under Subchapter V, you can propose your own reorganization plan to the court without creditor approval. There is no creditors’ committee formed. Although a standing trustee is appointed to oversee the case, the trustee does not play a role in operating your business. Another advantage is that administrative expenses can be paid over the term of the plan rather than all at once. A Subchapter V plan lasts three to five years, after which remaining debt is discharged. Importantly, you and other equity owners can retain your stakes in the business.

Liquidation and debt discharge under Chapter 7

If your business is not viable, you can file a Chapter 7 bankruptcy. This requires you to turn over assets to the bankruptcy trustee who sells the assets to partially satisfy your creditors. Then the court discharges your remaining eligible debt. If your business is an LLC or a corporation, the Chapter 7 covers the business only. In the case of a sole proprietorship or general partnership, each owner’s personal holdings can be looked to as sources for paying back creditors. As such, each owner may have to file a personal bankruptcy — using Chapter 7 or Chapter 13 — to protect themselves from liability.

Using Chapter 13 to resolve personal liability

A Chapter 13 personal reorganization is a form of bankruptcy reserved for individuals who have the ability to pay off a portion of their debts over time. Although it is not available to business entities, a sole proprietor or general partner of a business can use Chapter 13 to restructure personal debt related to the business. As with Subchapter V, the court approves a repayment plan lasting from three to five years. At the end of that period, the court discharges your remaining eligible debt. To qualify for Chapter 13, your secured debt and unsecured debt must be below certain limits set by law.

Contact a knowledgeable lawyer for small business bankruptcy in Queens, NY

Mark E. Cohen, Esq. provides bankruptcy advice and representation for small business owners in Queens and throughout New York City and its surrounding counties. To schedule a consultation, call 718-223-5492 or contact me online. My office is conveniently located on Old Country Road in Westbury.


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