Filing for bankruptcy is difficult, and the decision to do so is painful. This is true whether you’re filing as an individual or for your business. In both cases, you can liquidate everything. For Laguna Beach businesses, this is called a Chapter 7 bankruptcy. Businesses also have the option to reorganize under Chapter 11. But when should a business declare Chapter 11 bankruptcy?
You Want to Save Your California Partnership
Chapter 13 in California allows small businesses to reorganize and continue operating as they shed or pay off debts. Chapter 13 bankruptcy is not an option for partnerships and LLCs. They are forced to go through Chapter 11 bankruptcy, though it is time consuming and complex. Chapter 13 is reserved for sole proprietorships, businesses owned by a single person. A chapter 11 is thus the only option for partnerships.
One of the benefits of partnerships is that there are several people who are contributing to the business, though each has an equity state. Partnerships like LLCs often protect the individuals from lawsuits against the business. Unfortunately, partnerships mean that the death, divorce and bankruptcy of one member affects the others. Chapter 11 bankruptcy in Laguna Beach is the best option for protecting a partnership when one member if filing personal bankruptcy, and the rest of the members would like to settle their debt without dissolving the partnership. Furthermore, Chapter 11 is an option for entering a debt repayment plan without liquidating the partnership.
You Don’t Qualify for Chapter 13 Bankruptcy
Chapter 13 bankruptcy, like liquidation bankruptcies for Laguna Beach, CA individuals, has a financial threshold you have to meet in order to qualify. If you have more debt than this, you have to go through Chapter 11 bankruptcy. As of this writing, a small business debtor can file for Chapter 11 if they owe no more than around 2.7 million dollars, excluding obligations to family members with a stake in the business. Chapter 11 is also preferable than personal liquidation bankruptcy when you own a small business in California and the debts exceed 400,000 dollars in unsecured debts or 1.3 million in secured debts. Consult with a bankruptcy attorney to determine if Chapter 11 bankruptcy is an option for you.
Your Laguna Beach, CA Small Business Is an LLC
Limited Liability Corporations or LLCs in Laguna Beach, California are not allowed to go through Chapter 13. They have to go through the more complex Chapter 11 process. This is the downside of an LLC, though it protects your personal assets from a lawsuit or business bankruptcy as long as the corporate veil wasn’t pierced.
A Chapter 11 filing in California may be preferable if you have a lot of unsecured debts. For example, small business debtors don’t have to deal with a creditor’s committee under Chapter 11. On the other hand, there are additional filings and reports that are required. For example, they have to provide balance sheets, statement of operations reports, cash flow statements and tax returns in addition to the bankruptcy petition. Small businesses don’t have to file the disclosure statement large corporations do.
Small businesses have 300 days to propose a Chapter 11 plan. The California court can extend that deadline. You may have the ability to file a competing bankruptcy plan under Chapter 11. Creditors could file for liquidation or a takeover of assets. The small business debtor has 180 days to propose the plan before creditors can do this. Large businesses have 120 days.
The California court will oversee the payments made to creditors and any affiliated lawsuits. When the payment plan and/or bankruptcy plan has been completed, most or all remaining outstanding debts will be discharged. The business continues operations within the rules set by the courts or the creditors, but it is able to continue. Once it has shed its debts, it is free to take out new loans or make new acquisitions.
Your Laguna Beach Business Is a Corporation
Chapter 11 bankruptcies in California hit the news when large corporations file it. However, smaller corporations can file for Chapter 11, too. Chapter 11 allows the business to reorganize its structure and renegotiate its financial obligations. For example, they may be allowed to break unsustainable union contracts or lay off personnel. The layoffs and other personnel actions must still comply with state and federal law. For example, you can lay people off or refuse promised bonuses, but you can’t pay people less than the minimum wage. Money in a 401K or pension plan is off-limits to creditors, but the company can stop making contributions to it.
Chapter 11 in Laguna Beach involves more than downsizing. The debtor is allowed to sell some or all assets to pay its debts. They can also continue operations, paying their creditors on a new payment plan.
You Are a Single Asset California Real Estate Debtor
A Single Asset Real Estate debtor or SARE debtor is able to take advantage of Chapter 11. A Single Asset Real Estate debtor is one who owns a single, large piece of real estate. The bankruptcy code before 2005 defined this as a single piece of real estate worth less than four million dollars.
The SARE debtor is a person or business in California for which the single property or project generates most or all of their income. Note that it is possible for a person or parent organization to have several limited liability corporations, each of which is a SARE for a particular project. This could be an apartment building, strip mall, office building, warehouse or industrial building. SARE does not include family farmers, residential buildings with less than four units or a business that generates income outside of income from the given property. The SARE designation doesn’t include hotels, golf courses or hospitality businesses. They typically have too many additional sources of income like golf carts, restaurants, bars and complementary services offered to visitors.
Filing for Chapter 11 bankruptcy in Laguna Beach immediately stops foreclosure on the property. It also gives property owners breathing room, because the creditors have to go to court before they can take any action against the company.
You Are Not Sure What You’re Going to Do
Filing Chapter 11 bankruptcy Laguna Beach like other types of bankruptcy pauses all lawsuits, collections and foreclosures. A business filing for Chapter 11 will thus give a California business several weeks to stall legal actions. This gives them the time to formulate a solution. This may include allowing foreclosure on a property to go forward, filing lawsuits against those who owe you money or planning an orderly liquidation of assets.