• Small Business Bankruptcy

    If your business is overwhelmed with debt, bankruptcy may be the answer

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  • Filing for bankruptcy may be a smart next step for your struggling business.

    Find out what your options are and which direction you should take your business.

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  • In this economic climate, there are a lot of small businesses struggling just to survive.

    Sometimes, bankruptcy can help to alleviate financial stresses on a business; other times, financial problems can be handled outside of bankruptcy.

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Chapter 7 Bankruptcy May be the Best Option for You and/or Your Business

Deciding to close your business is difficult but before you start the process, speak to a Georgia bankruptcy expert who can guide you through the correct process. Every case is different so speak to a bankruptcy expert today!

Several times a week we receive a call from a business owner to discuss the closing of their business and how to deal with the often large debt owed by the company and usually personally guaranteed by the business owner.

When it comes to closing a business, bankruptcy is one option that can allow a business owner to stop bleeding money and get a fresh start.

It’s a simple fact of entrepreneurship: Small businesses fail all the time and for many different reasons, some of which are outside of the owner’s control.

If you’re falling deeper and deeper into debt by keeping your company open, sometimes the best business decision you can make is to shut down the business and cut your losses. (20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business).

Who can file Chapter 7 bankruptcy?

Chapter 7 is a liquidation bankruptcy, which means all of your non-exempt assets will be sold off by a court-appointed trustee to repay your creditors. Both individuals and companies such as partnerships, limited liability companies (LLCs), and corporations can file for Chapter 7 bankruptcy.

Business owners can file also Chapter 7 for themselves personally or their business.  A sole proprietor is personally liable for business debts so they can wipe out all debt with a personal filing. One thing to note however is that although business entities can file a Chapter 7  bankruptcy, they cannot receive a discharge like an individual debtor.

Some things to consider about a Chapter 7 Business Bankruptcy:

Business entities – meaning the corporation or LLC as opposed to the individual owner – are also entitled to file a Chapter 7 bankruptcy.

A Corporation or LLC cannot be discharged of any debt in a Chapter 7 bankruptcy case. So a Chapter 7 Business Bankruptcy is usually not a good solution for businesses which intend to operate after the bankruptcy filing or for those seeking to reduce or restructure their business debt.

In a Chapter 7 Business Bankruptcy, a Trustee is appointed to liquidate any remaining assets and allow the Business to close debt free. After the bankruptcy petition is filed, the Chapter 7 Trustee will be responsible for the assets of the corporation. The Trustee may require that any assets of the corporation be turned over to the Trustee and liquidated to pay debts. Also, the Trustee reviews recently sold assets or transfers of corporate assets.

After a Chapter 7 Business Bankruptcy is filed, an “automatic stay” goes into effect that stops creditors from taking any further action to try to collect their debts unless or until the bankruptcy court decides to the contrary.

The automatic stay is an injunction that is issued against all creditors immediately upon filing a bankruptcy petition. The “automatic stay” does not stop any creditor from proceeding against an individual who signs a personal guarantee on a debt with the corporation.

Prior to the filing of the Petition, the Corporation or LLC will be required to hold a meeting and enter a resolution to file bankruptcy. Thus, it is important that all those with a voting interest in the business review with an experienced attorney the aspects of any Bankruptcy fling.

Small Business Chapter 7 Bankruptcy Cases Are Often Not Necessary

When we are retained to represent a Small Business and/or its owners, we review all options available to address the debt issues.

For Small Businesses which have temporary debt issues which can be solved through a reorganization, we consider a Chapter 11 Bankruptcy for the business or other options to restructure debt and allow the business to survive.

When many people start a business—particularly first-time small-business owners—they are required to personally guarantee any leases, personal loans, credit cards, or equipment loans.  This means that when the business fails, they will need to look at filing a personal bankruptcy in order to wipe out that debt they guaranteed.

Most of the small business owners I meet with have little or no inventory and simply need to just shut down their business, file a personal chapter 7, and move on with their life.  Although creditors could still pursue the company, there is nothing they can do once the owner files personally bankruptcy.  

The majority of business creditors will stop the pursuit of the closed company once they receive notice that the owner filed for bankruptcy protection.  The old saying, “You can’t get blood from a turnip” often applies in these cases. They don’t want to waste money chasing a company that has nothing.

Our goal is to provide our Small Business clients with all of their options when faced with debt issues.

Reasons a Business Would File a Chapter 7 Corporate Bankruptcy

As a sole proprietor, Chapter 7 lets you wipe out both personal and business debt in a single filing. And even though your personal assets will be included in the bankruptcy estate, you can use exemptions to protect some—and maybe even all—of your property.

The majority of my business clients who file for Chapter 7 protection are able to keep their personal assets such as their homes and cars.  When you meet with a bankruptcy attorney make sure that they review what bankruptcy exemptions will be available to you if you file.  These exemptions vary from state to state.

If a company cannot receive a discharge of its debts then why file?  Why pay the filing fee and attorney fees and at the end of the day still have no discharge order? The main reason we see many clients request the Chapter 7 business bankruptcy is because they want an easy way to wind down the company and wrap everything up in a neat “package”.  

Chapter 7 bankruptcy provides an orderly and transparent method for business entities to wind down their operations, sell off their assets, pay back creditors, and shut the entity down.

Although all these tasks can also be done outside of bankruptcy, doing so through Chapter 7 appoints a Chapter 7 Trustee to handle the estate. Creditors may prefer to see that, because it means there is less chance that the business owner is cheating by hiding company assets instead of selling them to pay back business debts.  

Peace of mind is key to many business clients because they need to be able to put this behind them and go on to the next venture.

10 Step Guide to Closing a Small Business in Georgia

Regardless Of Whether Or Not You Decide To File A Business Bankruptcy, You Need To Know The Correct Steps To Closing A Business.

The decision to close a business is not something you should do unilaterally. If you own a partnership or LLC then you should consult with the other owners. If you own a corporation, consult with your board of directors. Most times, you can’t close a business without their consent anyway. Work with your business’s other stakeholders to formulate an exit strategy and map out the best way to shut down the business.

Additionally, consider getting help from outside sources. This can include:

  • Lawyers
  • Bankers and accountants
  • Tax professionals

Formulating a plan before officially deciding to cease operations will help you get through the closure process more smoothly.

You’ll need to use your best judgment when telling your employees about your decision to close. You can either tell them at the last possible moment to avoid having them quit, or you can give them ample warning so they can line up another job. Part of your strategy should be determining how to handle employees.

If you have outstanding accounts receivable, you’ll need to implement an aggressive collections strategy. Once you shut down your business, it will be practically impossible to collect your accounts receivable. Other business owners will be less inclined to pay. And, their accounting practices may not allow them to do so since they would have to pay an individual instead of a legal entity. Upon closing your business, you no longer have legal standing to collect.

  • Make collection attempts before you announce you’re going out of business. Otherwise, customers may feel as though they don’t have to pay you, or they’ll try to stall payment until after you’ve closed your doors.
  • Offer discounts for immediate payment, especially if you’re dealing with aging receivables. You can increase the discounts as the time of your closure approaches. Sometimes, it’s better to collect some funds than none at all.

If you have excess inventory, now is the time to sell it. This can provide you with the cash necessary to pay any debts you may owe. NOTE: Even if you are not planning on filing a business bankruptcy, if you are planning on filing for bankruptcy personally you need to make sure that you keep an excellent accounting of what was done with the funds.

Try to first fulfill all outstanding jobs. If you can’t meet them, you should refund the money paid on those jobs. Communication is critical during this time. It’s better to be upfront and honest with customers.

You’ll need to inform your creditors that you’re closing your doors and pay any outstanding debts.

  • You’ll want to inform unsecured creditors and suppliers right before you close. Try to time this notification just right so you can continue to receive the inventory and supplies you need up until the moment you close your doors.
  • Those with bank loans need to proceed with caution. In some cases, as soon as you inform your bank that you’re going out of business, it can call your note due or even deduct your balance from your business bank account. Keep this in mind when considering when to let them know of your plans.
  • Sole proprietorships and partnerships should send a letter to creditors telling them you’re closing and asking for a final bill.
  • LLCs and corporations also have other requirements in regards to closing down the business.  For more details please go to this site: https://sos.ga.gov/index.php/corporations/first_stop_business_guide

After you pay employees for the last time, you’ll need to file the federal and state employment tax forms and make the business tax deposits just as you always have, according to the regular schedule.

Next, you’ll need to submit your state sales tax forms, along with the amount of taxes you collected up to the date of closing. Write “FINAL” across the top of the form and then talk to your state agency about how to close your tax account.

Depending on how your business is set up, the IRS has specific requirements for filing final income tax returns.

  • Sole proprietors: There is no “final return” box to check on the Schedule C. Instead, just file your return by April 15 the year after you close.
  • Partnerships and LLCs: When filing IRS Form 1065, check the “Final Return” box. You’ll also need to report profits and losses that have been distributed to each partner on Schedule K-1 of Form 1065. Do this by April 15, the year after your business closes.
  • Corporations: Check the box indicating that this is your final return when filing Form 1120, and report shareholder allocations on Schedule K-1. You’ll also need to dissolve your corporation by submitting Form 966. You’ll need to file these forms no later than two months and 15 days after you close your business.

Lastly, you’ll need to file your final employer tax returns if you had employees or independent contractors working for you. You’ll need to file Form 941 or 944— depending on whether you’re required to register quarterly or annually—along with your last federal unemployment tax return. File these forms, along with the accompanying payments, by their regular due dates, and mark them final.

You’ll need to issue W-2s to your employees and report the withholding information to the IRS. Issue 1099-MISC forms to your independent contractors and report that information to the IRS as well.

Once you’ve paid all debts, taxes, employees and loans, you can distribute the remaining funds to owners. You should not do so until you’re positive that you’ve paid off all business debts.

Protect your finances and reputation by canceling any of these that you no longer need, including your trade name.

If you are a sole proprietor then you don’t need to file a formal dissolution.  Otherwise, you’ll need to submit articles of dissolution in every state where you’ve registered to conduct business. You can do so with each respective Secretary of State’s office.

There are likely other business accounts that you’ll want to shut down. Examples include licenses, registrations, permits and business names. Remember that you may need to file paperwork outside of the Secretary of State’s office to fulfill these obligations. You may need to do this at the local, state and federal levels.

You’ll also need to close credit cards and bank accounts, but make sure you’re done collecting or making payments before doing so. The same goes for any rent or utilities you’re paying. You don’t want to do this too soon, but make sure you don’t forget to do it either.

Schedule a FREE Bankruptcy Consultation

Our firm offers video consultation from the convenience of your home or in-person appointments in one of our 10 office locations.

We invite you to contact us either online or by phone at 404-919-7296 to schedule a free confidential consultation to review your personal financial situation and what options we can provide to protect you from creditors. For additional information about bankruptcy please also check out our YouTube Channel which has up to date vlogs on issues related to personal bankruptcy.

© 2020 Saedi Law Group LLC. All Rights Reserved. LEGAL DISCLAIMER: We are a debt relief agency. We help people obtain relief from their creditors by filing for bankruptcy. Nothing posted on this website shall constitute legal advice. If you need legal advice please contact our office to schedule an appointment. No attorney client relationship exists until we have a written contract.
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