I Think My Business is Failing - What Should I Do?


If your business fails then obviously you are going to lose the source of income your business may have provided. But an even greater fear of many business owners is the fact that they may lose their hard earned savings and property due to debts that they incurred in trying to make the business succeed.

If your business operated as a limited liability entity such as a corporation or LLC then you might have much less to worry about than if you operated as a sole proprietor or partnership. The reason is that only the party that signs a contract has contractual liability. Therefore if your corporation is the party that signed that lease then only your corporation is liable. But if you personally guaranteed the lease then you would be also personally liable.

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If things are really looking bad then you will consider bankruptcy.

BANKRUPTCY BASICS

There are 3 categories of bankruptcies that an Encinitas businessperson will consider: Chapter 7, 13 and 11.

In a Chapter 7 bankruptcy your debts are discharged but you give up all your property that is not considered exempt.

A Chapter 13 bankruptcy, in theory, is less severe than a 7. In a Chapter 13, you don't give up your property in order to cancel your debt. You keep your property. You submit a plan to the court. In the plan you show how, with your income, such as it is, you can pay some, but not all of your debts. If you keep up the payments, at the end of the plan I (usually 5 years) the unpaid portion of some of your debts is discharged. You pay your income to the court trustee and he pays your bills for you. The trustee charges 10% for his services.

A Chapter 11 bankruptcy is similar to a Chapter 13 but for people or entities with larger debts. If your unsecured debts are greater than $307,675.00 you are not allowed to file a Chapter 13. You must file a Chapter 11. Also Chapter 13 is only for individuals.

A LITTLE MORE DETAIL ON CHAPTER 7'S

As I mentioned, in a Chapter 7 you turn over all your non exempt property to the court and, in exchange, all your debts are discharged. This sounds harsh. In fact, most debtors don=t turn over any property to the court. The reason is that debtors, with the assistance of their attorney, try to fit all their property into the exemptions. If an exemption can be found for each item of the debtor=s property then the debtor does not lose any property.

A LITTLE MORE DETAIL ON CHAPTER 13'S

As discussed above, with a 7 most of your unsecured debts are discharged. But in a Chapter 13 you have to pay a portion of your unsecured debts over a time period. So why would anyone do a Chapter 13?

The answer is that some debtors cannot qualify for a 7 because they flunk the means test. Other debtors have property that is non exempt property which they would lose in a Chapter 7. So, in other words, some people are stuck filing for Chapter 13 because it is impossible or unwise to file for a Chapter 7.

But for some debtors a Chapter 13 can do much more for them than a 7.


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