Massachusetts Business Bankruptcy FAQ's
We have compiled a few commonly asked questions and provided a response that should help you have a better understanding of bankruptcy. If you have any further questions, please feel free to contact us.
Massachusetts Business Bankruptcy Questions:
Please note that nothing in this section should be considered legal advice nor does it create an attorney client relationship. Every situation is different and only an experienced, licensed bankruptcy attorney can advise you on your particular situation. Contact us today to speak with our Massachusetts bankruptcy attorneys today.
ANSWERS
Q: What types of Bankruptcy are available for my business?
There are two types of bankruptcy proceedings that are available to businesses:
- Chapter 7 is available for corporations and partnerships. In this proceeding, a trustee is assigned to the case after the bankruptcy is filed. Secured debtors are entitled to recover the property that secures their debt. The trustee then works with the business owner in liquidating the remaining portion of the business' assets such as inventory, furniture and vehicles. The funds collected by the trustee are then distributed to the business' creditors and the business ceases operation.
- Chapter 11 is a reorganization proceeding. A business in financial trouble may elect to file a Chapter 11 petition to try to reorganize outstanding debts and continue to operate the business. There is an automatic stay, just like any other bankruptcy proceeding. Unlike in a Chapter 7 proceeding, a business that files a Chapter 11 proceeding will become a debtor-in-possession and there will initially be no bankruptcy trustee appointed. The debtor-in-possession is given an opportunity to prepare a plan of reorganization that must be approved by a majority of the creditors. If a plan is approved by the creditors and is confirmed by the court, it binds both the debtor and the creditors to its terms of repayment. Under the plan, the debtor-in-possession can reduce debts by repaying a portion of its obligations and discharging others. It can also terminate burdensome contracts and leases, recover assets, and rescale operations to get back to profitability. Under this Chapter, a business normally goes through a consolidation period and comes away with a reduced debt load and a reorganized business. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization. Generally, the plan of reorganization must provide for paying creditors at least as much as they would have been entitled to be paid in a Chapter 7 liquidation proceeding.
Why should I hire an attorney to file Bankruptcy?
Business bankruptcy is extremely complicated. There are many different types of business debt and obligations and only a qualified bankruptcy lawyer can ensure that things go smoothly. If you make a mistake on your petition, as the business owner, or director, you risk losing your personal assets. Therefore, be sure to contact us if you are considering closing your business or filing bankruptcy. [top]
Should I file business bankruptcy or just close my doors?
That depends. Every situation is different. If you have considerable assets or inventory; or if you have secured debt, it is probably better to file Bankruptcy; otherwise you could simply close your doors and file your Articles of Dissolution with the Secretary of State. Since every situation is different, it is best for you to consult with an attorney. Feel free to contact us for your free consultation to discuss your options..[top]
What happens to my inventory or other business assets in a Chapter 7 Bankruptcy?
If the inventory is secured by a loan, then the secured party (bank) is entitled to collect the property. However, if there are no secured creditors, then the bankruptcy trustee may decide to liquidate the assets in order to satisfy the business' unsecured creditors. If there are insufficient assets, then many times the trustee may "abandon" the property; if this happens, then the business owner may take possession and control of the business assets.[top]
Why would I file Chapter 11 instead of Chapter 7?
Chapter 11 Bankruptcy is reserved for businesses that can remain a profitable viable entity if it were able to reorganize its debts and obligations. For more information, or to discover if your business is a candidate for Chapter 11, contact us. [top]
I have a personal guarantee on a business loan, what happens after I file Bankruptcy?
As a guarantor, you become personally responsible for all debts of the corporation in the event that the corporation defaults. In the case of a business bankruptcy, once all business assets are liquidated, and distributions are made to creditors; you will become responsible for the remaining balance of the business debt that you personally guaranteed. Many times, small business owners are forced to file personal bankruptcy after their business closes. [top]
Can I continue to operate my business in a Chapter 11 Bankruptcy?
In a Chapter 11 bankruptcy, typically, the owners and managers of the business are entitled to continue to operate the business. They become a "debtor in possession" or "DIP". The DIP runs the day to day operations of the business with the protection of the Bankruptcy Court. With the assistance of their attorney, the business will prepare a plan or reorganization that outlines how debts and obligations are to be restructured to allow for the business to continue to operate and return to profitability.[top]
What happens if I file Chapter 11 but cannot return to profitability, or if my creditors cannot agree on a plan of reorganization?
In order to emerge from a successful Chapter 11 Bankruptcy, the business must prepare a Chapter 11 bankruptcy plan. This reorganization plan must be approved by a committee that is appointed by the business creditors ("creditor's committee"). If it is impossible for the business to restructure to a point that the business can become profitable, or if the creditors cannot agree on a Chapter 11 plan, then the bankruptcy can be converted to a Chapter 7 and the business assets will be liquidated. In most cases, a conversion to a Chapter 7 is worse for the creditors; therefore, they will usually do their best to ensure that the business continues operations.[top]
To find out more about Business Bankruptcy, contact a Massachusetts Bankruptcy Lawyer by filling out our Bankruptcy Consultation Form, or calling (617) 497-7141.
Free Consultation With A
Massachusetts Bankruptcy Lawyer
(617) 497-7141
At Grantham | Cencarik, P.C., we offer a FREE one hour consultation with all potential new bankruptcy clients. This gives you an opportunity to meet, or speak with the bankruptcy attorney that will be working with you on your matter. Moreover, we offer simple flat rates and allow you to pay your legal fees in monthly installments.
The Boston Massachusetts bankruptcy lawyers at Grantham | Cencarik, PC operate as a debt relief agency located in Cambridge and serving clients in Boston and eastern Massachusetts, including Cambridge, Braintree, Somerville, Revere, Brockton, Chelsea, Peabody, Quincy, Saugus, Winthrop, and the following counties: Essex, Middlesex, Norfolk, Plymouth, and Suffolk.