When it comes to small business bankruptcy in Massachusetts, business owners need to know key information about the bankruptcy process. If your small business is struggling to meet its obligations or has debts in collections, it’s worth considering whether bankruptcy could provide the relief you need.
Small Business Bankruptcy: What Is It, and How Does It Work?
Small businesses that need to declare bankruptcy may have several options for proceeding. Depending on the business’s income, it may qualify to file for Chapter 7 bankruptcy. Chapter 7 involves a quick process of selling off any non-exempt assets to pay creditors, then receiving a discharge of remaining debts. Businesses with steady income that are still dealing with significant debt can file for Chapter 11 bankruptcy. In Chapter 11, the bankruptcy trustee helps the business devise a plan to pay creditors and handle its debts. If you are the sole proprietor of an unincorporated business, you may have the option to file for Chapter 13 bankruptcy instead. Chapter 13 involves a consolidated monthly payment plan for three to five years that fully or partially pays creditors, leading to the discharge of any remaining debt upon completion of the plan.
In all three types of bankruptcy, the court puts an “automatic stay” in place after you complete the legal filing. The automatic stay acts as a “stop collections” order for creditors. They must stop trying to collect debts from your business and any lawsuits they may have filed to collect them. If creditors violate the automatic stay, they can face penalties and damages. In this way, the automatic stay gives your business some breathing room to assess its financial situation and work with the bankruptcy court to find a path forward.
Options Instead of Bankruptcy
At Daigle Law Office, our small business lawyers work with some Massachusetts small business owners who are hesitant to file for bankruptcy, wanting to keep their business up and running without the credit hit that bankruptcy may bring. Depending on your business’s situation, we may advise you to take steps other than bankruptcy to reduce your business’s debts. For example, we can help you negotiate with creditors by explaining your financial situation and offering to set up a payment plan. Some creditors are willing to lower interest rates or accept a long-term payment plan to ensure that they do get paid. We may suggest taking out a debt consolidation loan that combines your business’s debts into a single monthly payment at a lower interest rate, potentially saving you money. Also, we may suggest that you take a business credit counseling course from a non-profit agency that can guide you on managing your debt, repaying it in an organized fashion, and sometimes, negotiating with creditors for you.
Next Steps for Small Businesses
When your business is in financial distress, you need to figure out what’s next. You may decide to file for bankruptcy, seeking a court-ordered plan to repay debts and a discharge of some of them. Some business owners may be able to negotiate with creditors and make payments outside the bankruptcy process. Whichever path you choose, Daigle Law Office can guide you. Our lawyers work with small businesses and their owners who are facing creditor harassment, collection efforts, and bank levies. When your small business is struggling, reach out to us for help.
Frequently Asked Questions
Do I have to close my business to file for bankruptcy?
No, you do not have to close your business! Many Massachusetts businesses continue to operate during bankruptcy. The bankruptcy process is all about assessing and paying off or discharging debts. Your business can keep making income at the same time. Sometimes it makes sense to close a business that is overwhelmed by debt. Whether your business is in that position is a question we can discuss during a private consultation about your case.
What’s a “reorganization” bankruptcy?
People often refer to Chapter 11 bankruptcy as “reorganization”, because rather than quickly liquidating assets and discharging many debts (like in Chapter 7), the court helps Chapter 11 filers reorganize their assets and debt structure, forming a plan to repay debt and stay economically viable as a business.
Need Debt Advice as a Massachusetts Small Business Owner? Call Us
Are you looking for a dependable, experienced lawyer who can assist with a bankruptcy or debt negotiations for your small business? Daigle Law Office’s attorneys can provide you with experienced Massachusetts bankruptcy help. It’s not easy to deal with financial problems, and it’s frustrating when creditors hassle you about paying debts. Daigle Law Office helps clients dealing with tough situations who need solid, reliable legal advice. To schedule a consultation, call 508-771-7444 or use our convenient Contact Form.
