The economic impact of the COVID-19 pandemic has left many Idaho small business owners in a tough spot, grappling with mounting debt and financial uncertainty. I have consulted and met with more Idaho small business owners in the last 18 months than I have in the last 12 years of my practice. While bankruptcy is often associated with individuals seeking debt relief, it can also be a valuable tool for small business owners, even though business entities themselves do not receive discharges under the bankruptcy code. Idaho small business owners can still leverage bankruptcy as a tool to navigate their financial challenges and regain control of their businesses.
Understanding the Basics:
If your small business is a sole proprietorship, filing for Chapter 7 bankruptcy can provide relief by discharging personal debts related to your business. Here's how you can make the most of this option:
For small businesses structured as corporations or LLCs, Chapter 11 bankruptcy can be a lifeline to save the business. Here's how to go about it:
Idaho small business owners facing financial hardship can look to the bankruptcy code for help and as a viable tool for debt relief and business recovery. Whether you operate as a sole proprietorship or a business entity, bankruptcy can help you reach your goal and navigate financial challenges. By understanding Chapter 7 and Chapter 11 and working closely with an experienced bankruptcy attorney, Idaho small business owners can take steps toward securing the financial future of your business.
Understanding the Basics:
- Chapter 7 for Businesses: If the goal of the business owner is to shut down the business, chapter 7 may be a tool for an orderly and proper shutdown. During a business chapter 7 a chapter 7 bankruptcy trustee will be appointed to review business assets, liquidate business assets, and pay business creditors. While the business entity will not receive a discharge, the remaining unpaid creditors will know that the business no longer has assets and is not operating. If the business owner has personally guaranteed some or all the business debts, then a personal bankruptcy may be needed so a personal discharge of debts and a personal fresh start can be obtained.
- Chapter 7 for Individuals: Small business owners often operate their businesses as sole proprietorships. In such cases, the business's debts are often personally tied to the owner. Filing for Chapter 7 bankruptcy as an individual can help discharge personal debts related to the business, providing relief for the owner.
- Chapter 11 for Businesses: While businesses themselves don't receive discharges, Chapter 11 bankruptcy is designed to help businesses restructure their debts and continue operations. This option allows business owners to create a repayment plan that is more manageable and keeps their business afloat.
If your small business is a sole proprietorship, filing for Chapter 7 bankruptcy can provide relief by discharging personal debts related to your business. Here's how you can make the most of this option:
- Separate Business and Personal Debts: Ensure that you distinguish between business and personal debts. This separation is crucial for a successful Chapter 7 filing.
- Liquidation of Business Assets: In a Chapter 7 bankruptcy, non-exempt business assets may be sold to repay creditors. Work with an attorney to understand which assets are legally protected and which are not legally protected. Idaho does have a tool-of-the-trade exemption, but it does not cover all tools in every situation.
- Personal Debt Discharge: After the liquidation process, personal debts related to the business can be discharged, providing you with a fresh financial start.
For small businesses structured as corporations or LLCs, Chapter 11 bankruptcy can be a lifeline to save the business. Here's how to go about it:
- Create a Chapter 11 Reorganization Plan: With the help of your attorney, develop a comprehensive reorganization plan that outlines how your business will repay creditors over time. This plan should be both realistic and sustainable.
- Approval by Creditors: After the bankruptcy is filed your bankruptcy attorney will help you through the process of working with each Creditor. Creditors must approve the reorganization plan. Negotiate with them to gain their support, possibly by offering modified payment terms.
- Court Approval: The court must also approve your reorganization plan. Ensure it complies with the bankruptcy code and meets all legal requirements.
- Continued Operations: Once your plan is approved, your business can continue operations while adhering to the agreed-upon repayment schedule.
Idaho small business owners facing financial hardship can look to the bankruptcy code for help and as a viable tool for debt relief and business recovery. Whether you operate as a sole proprietorship or a business entity, bankruptcy can help you reach your goal and navigate financial challenges. By understanding Chapter 7 and Chapter 11 and working closely with an experienced bankruptcy attorney, Idaho small business owners can take steps toward securing the financial future of your business.