When most people think of Chapter 11 bankruptcy, they think of big business bankruptcy filings – MCI WorldCom, United Airlines and General Motors, for example. In reality though, Chapter 11 is not just for billion dollar corporations. Chapter 11 can be useful for many smaller companies who are suffering financial hardships as well. Often companies with as little as one million dollars in revenue can reorganize successfully in Chapter 11.

In fact, the Bankruptcy Code offers small businesses unique procedures in Chapter 11 bankruptcy protection, which are designed to make the process less time-consuming and more cost-efficient. For those businesses that qualify as “small businesses,” there are often advantages to filing for Chapter 11 bankruptcy.

Who Qualifies as a Small Business?
-A business which is engaged in commercial activities other than primarily owning or operating real property that has total non-contingent liquidated secured and unsecured debts of $2.19 million or less qualifies as a “small business” under the Bankruptcy Code.

The Chapter 11 Process

The Petition

To initiate a Chapter 11 bankruptcy case, someone must file a petition with the bankruptcy court. The company (also known as the debtor) may file the petition voluntarily or the company’s creditors may file a petition for the debtor, known as an involuntary petition.

As soon as the petition is filed the case begins. One of the chief advantages of the filing is an automatic stay of all collections actions against the company. This means that creditors must cease any collection or other adverse activities against the debtor unless the Court, following a noticed motion which the debtor and others can oppose, issues an order to modify the stay. The automatic stay provides the debtor with temporary relief from creditors and the opportunity to catch its breath, develop a plan and negotiate more favorable repayment terms.

The filing requirements for a small business in bankruptcy are simple. They include:
- A copy of the business’s most recent balance sheet
- A statement of operations
- A cash-flow statement
- A copy of the most recently filed federal income tax return

Except in very unusual circumstances, after the petition is filed, the debtor continues to run its business without interruption during the bankruptcy. It does so under the supervision of the Bankruptcy Court. The goal is to develop a plan for paying some or all of its debts back over time. Often the amount repaid is deeply discounted.

During the case, the debtor has the opportunity to examine and object to creditors’ claims where desirable and appropriate. The Court monitors the debtor’s progress in part by the debtor’s filing of monthly operating reports.

The Reorganization Plan

As mentioned above, the primary purpose of a Chapter 11 bankruptcy is to reorganize the business’s debts so that the business may become profitable once again. As part of this reorganization, some of the debts may be paid in full while others may be partially repaid or discharged all together. The business also may be able to change the terms of leases and business contracts that have become unfavorable to the business.

To emerge from bankruptcy, the debtor is required to develop and file a reorganization plan for the business which it does with experienced bankruptcy counsel. The reorganization plan puts creditors into “classes” for voting and claim treatment purposes. Each secured creditor is placed in its own class, while all of the unsecured (i.e., trade) claims are generally placed together in a class. Priority claims such as taxes and past due wages and equity interests (i.e., stockholders) are placed in their own classes. Under its plan, the debtor may impair the repayment rights of creditors – i.e. modify the repayment terms and amounts required by law or by the contract between the debtor and its creditor.

The reorganization plan is subject to vote of creditors and approval by the bankruptcy court.

Confirmation and Discharge of Debts

In general, the court will confirm the reorganization plan as long as the plan is feasible, was proposed in good faith and complies with the legal requirements under the Bankruptcy Code. Generally speaking, creditors must be paid as much as they would receive if the businesses’ assets were liquidated, which is usually far less than what is owed.

Once the reorganization plan is confirmed, any debts not subject to the plan that existed prior to the date of confirmation against the debtor are discharged by the court. The debtor then is bound to repay creditors and run the business according to the terms of the reorganization plan.

Greater Oversight for Small Businesses

During the Chapter 11 process, small business debtors are required to report on the business’s profitability and projected cash receipts and disbursements. The small business debtor is also subject to additional oversight by the U.S. trustee appointed to the case and therefore should move forward quickly with its reorganization.

Contact an Experienced Bankruptcy Attorney

Chapter 11 bankruptcy offers small business owners many benefits, including allowing the owners to continue to operate their businesses rather than being forced to close down shop and liquidate their assets. Small businesses that emerge successfully from Chapter 11 bankruptcy often are able to acquire new financing and loans on much more favorable terms than they would have been able to before the bankruptcy, when their businesses were saddled by debt.

The biggest hurdle for companies filing for Chapter 11 relief is often its cost. While Chapter 11 is an effective tool, it can be expensive and therefore the projected costs must be weighed against the likely benefits. Chapter 11 bankruptcy is not intended for businesses suffering from low sales and low demand for their products or services, but rather those who can survive if given relief from their debts. For businesses with very poor sales a Chapter 7 bankruptcy case may be a better option.

For more information on the benefits and drawbacks of filing a Chapter 11 bankruptcy for your small business, contact an experienced bankruptcy attorney today.

Article provided by Weintraub & Selth, A Professional Corporation
Visit us at www.wsrlaw.net

Not every financial scammer operates on the level of a Bernie Madoff, but they all take advantage of good people and drain energy from our economy when it’s needed most. Persistent telemarketers exploit vulnerable people who are trying to get ahead by selling them on worthless work-from-home business opportunities, bait-and-switch credit relief, or risky Ponzi schemes. Offering victims a chance to jumpstart their prospects and escape the Great Recession, fast-talking opportunists lure victims who may act without clear judgment due to recent unemployment, mortgage problems, pending home foreclosure or other financial distress. Arizona has become a major hotbed of boiler rooms where telemarketing fraud generates ill-gained profits.

Business Opportunity Scams and Investment Fraud

One persistent area of telemarketing fraud involves preying on the victim’s desire to improve their financial prospects – from work-at-home business opportunities and franchise offers to Ponzi schemes and other scams.

The Federal Trade Commission cautions consumers about a wide range of business opportunities, including coupon scams, envelope stuffing, rebate processing, assembly work, medical billing opportunities and Internet-based business ideas. Victims can squander a dispiriting quantity of money and effort before finding out that the goose does not lay golden eggs. A quick review of the FTC’s regular advisories will educate you about the perils and make you a smarter consumer.

Illegal or overhyped investment opportunities can do even greater damage, leading to a loss of life savings or foreclosure on a family home. You should always thoroughly research any pitch before investing, whether it involves rare coins, oil leases, breakthrough computer technology or any other investment that is promised to deliver returns. Common sense should always prevail: if it sounds too good to be true, walk away. But even if it sounds reasonable, demand a full portfolio, do background research and discuss the idea with objective friends and family members.

False Credit Repair Promises

One common pitch that quickly catches the attention of many people in financial trouble is an offer to repair a lousy credit report. The one glaring problem with these so-called “strategies”: there is no silver bullet for repairing your credit except hard work and time. The smooth operator who promises you the sun will disappear behind the clouds after making a quick buck and maybe taking a few token steps on your behalf. Here are a few common scams and why you should avoid them:

- They promise to explain how you can fix your credit if you call a 900 number. Operators will keep you on the phone long enough to rack up the charges per minute.

- They suggest tricks to convince creditors that you don’t really owe a particular debt. Scammers who file inaccurate complaints on your behalf will take your money for temporary status improvements that will then expire.

- They claim that they can help you start over with clean credit. Creating a new taxpayer identification number or Employer Identification Number (EIN) is a crime, and the old debts will catch up to you because of other identifying data.

- They promise to use inside contacts to get you a new mortgage or other lines of credit to clear up your record. Instead, contact a law firm that understands the full range of debt relief options to explore legitimate processes.

This is the reality: if the main source of your financial troubles is a bad credit rating, you will need to take the long view toward making improvements. If your only problem is inaccurate data showing up on your credit report, it is relatively easy to contact the reporting agency yourself. If you are also saddled with a heavy debt load because you lost a job, suffered major medical problems or experienced other setbacks, you may need legal counsel to help you find an appropriate solution.

Real Debt Relief Solutions

Debt can be managed by a variety of strategies, including consolidation, mortgage refinancing, loan modification and old-fashioned priority setting. But for some people, the debt load has reached a tipping point, and no measure short of a bankruptcy filing will solve their financial crisis. Legal professionals have the ability to advise you about all of these options and handle every aspect of your case, from the notice letter to the negotiating table and court hearings.

Both chapter 7 and chapter 13 bankruptcy provide the benefit of an automatic stay. For people who are exhausted from constant creditor harassment, bankruptcy can provide immediate relief. An experienced bankruptcy attorney can explain the advantages and disadvantages of bankruptcy, as well as the differences between chapter 7 and chapter 13 – and what chapter is best for you in your unique situation. Above all, a reputable bankruptcy attorney can advise you whether you are a good candidate for debt relief options in the first place, rather than simply just take your money and give nothing but false promises.

Article provided by Joseph C. McDaniel, P.C.
Visit us at www.josephmcdaniel.com

People find themselves in financial trouble for a variety of reasons. Whether it is the result of unpaid medical bills, divorce, the loss of a job or any other reason, more and more people are struggling to find a way out of debt.

Regardless of how a person finds him or herself with financial difficulties, the question quickly becomes “How do I get out?” People in these situations do have options, but the right choice will vary from person to person.

For many people, the choice often comes down to the decision to file bankruptcy or work with a debt consolidation company. Though the goal of both is to help people reduce or eliminate unmanageable debt, they differ dramatically in their approaches.

Advantages and Disadvantages of Debt Consolidation

Debt consolidation is the process of combining multiple debts into one, allowing the person to make a single payment for all amounts owed. For those with multiple credit cards or smaller debts, this may be an effective approach. However, many people using debt consolidation focus on chipping away at existing debt while ignoring the larger issues.

Most important, they fail to ask how they got themselves to this point in the first place and refuse to consider necessary lifestyle changes to avoid future problems with debt. This is especially problematic when using a debt consolidation company, because credit lines often remain open, tempting people to fall back into the same trap. Service fees must be paid before any of your money is used to benefit any of your creditors.This is money that could be used to pay off creditors.

Usually, people have a combination of secured debt – such as cars, furniture and mortgages – plus unsecured such as credit cards and medical bills. Debt consolidation can only help you with unsecured debt. This results in a disorderly distribution of funds.

Finally, the debt consolidation process includes no provision to stop collection actions.

Bankruptcy Preferable in Many Cases

For people with more debt and more complex financial problems, bankruptcy may be the best approach. For personal bankruptcies there are essentially two options.

Chapter 7 bankruptcy is sometimes referred to as “straight” or “liquidation” bankruptcy, because your unsecured debts are discharged, or eliminated. Chapter 13 bankruptcy, however, allows you to pay back your debts over three to five years, discharging any remaining unsecured debt at the end of the payment plan. One benefit of bankruptcy that is not available through the consolidation process is the “automatic stay”, which stops all foreclosures, garnishments and most collection activity against you.

Another advantage of the Chapter 13 process is the orderly distribution of funds. It stops payment, interest and penalties on credit cards for a period of time, while your first payments are made to more important creditors that hold car loans or mortgages. Also, the bulk of the attorney fees and not required up-front but are paid along with your other debt, in the same manner as debt consolidation fees.

Bankruptcy gives people a chance to start over. To determine which type of bankruptcy is right for you or if you qualify, it is best to discuss your situation with an experienced bankruptcy attorney.

Lack of Regulation for Debt Consolidation Companies

While bankruptcy attorneys are licensed and regulated by state bar associations, there is little oversight for debt consolidation companies. Last year, the Texas Attorney General filed suit against a debt settlement company, alleging that it withheld millions of dollars from its clients. Ironically, the debt settlement company itself was going through the bankruptcy process at the time. This is only one example of an increasing problem. In Texas alone, consumer complaints to the Better Business Bureau against debt consolidation and settlement companies rose 15 percent from 2008 to 2009.

If you find yourself facing overwhelming and unmanageable debt, it is best to seek the advice of an attorney. Discussing your situation with a lawyer who is knowledgeable or board certified in consumer bankruptcy can you help decide if bankruptcy is right for you.

Article provided by Rosenbaum Law Offices
Visit us at www.rosenbaum-law.com