Chapter 11

Helping small business in Northern Virginia and Washington, DC get back on their feet.

Is your small business facing financial difficulties? Are the merchant cash advance loans straining your ability to pay your day-to-day expenses? Are you robbing Peter to pay Paul?

If so, then a Subchapter V under chapter 11 of the Bankruptcy Code may be just was the doctor ordered. Unlike a traditional chapter 11 that a fortune 500 company might file that is highly complex, tedious, expensive, and time-consuming subchapter V was created by Congress in order to allow “mom and pop” business to file a “mini-chapter 11” and shed most of their debt. Currently if a small business has less then 7.5 million dollars in debt it can file a “mini-chapter 11” and reorganize its finances. What other advantages does a Subchapter V for a LLC or a corporation offer? Glad you asked:

• If the owner of the business is also mired in debt -almost always due to personal guarantees-, and that level of debt is in excess of $2.75 million, but less than $7.5 million, and that debt is due primarily to running the business then the individual can also file a Subchapter V bankruptcy.

• If the company can demonstrate that after paying its monthly business expenses, and after paying a decent salary to the owner of the company there is only a fairly limited amount of cash available to pay the unsecured creditors, then those creditors will take a serious haircut. For instance, you might have $3 million in unsecured debt when you file the bankruptcy case, but may only be required to pay back 10 cents on the dollar, as in $300,000 over the span of three to five years because that is all the disposable income that the business has.

• The secured lender, whose huge loan is secured by the building the company owns or its equipment will be subject to having its loan modified and a good chunk of its loan may be treated as an unsecured loan if the value of the collateral securing its loan has greatly diminished. You may be able to modify the secured loan you currently have.

• Does the business have a third location that is no longer profitable? If so, the lease can be legally terminated.

• Unlike “big boy chapter 11” where the creditors hold certain veto power over your plan, and where they can bully you into paying more, in “small business chapter 11” the bankruptcy court can approve the plan payment that you are proposing as long as it is fair and equitable. Which is why some bankruptcy lawyers refer to subchapter V as a somewhat more complicated chapter 13, but one that is offered to small businesses.

• The legal fees are not nearly as expensive as they are in a traditional chapter 11 filing. Rather than tens and tens of thousands of dollars being spent by a medium size business to go through a chapter 11, with subchapter V, barring some extraordinary twists and turns, a small business can expect to pay no more than $20,000 in legal fees when factoring in the fees of the company’s attorney, the fees of the appointed chapter 11 trustee, and the court filing fee which is nearly $2,000. So while $20,000 is not exactly pocket change, it certainly is not an astronomical amount either, especially considering the fact that the debt load that could be discharged in a successful chapter 11 could be literally in the millions of dollars.

Please note that this is just a broad overview of how a chapter 11 bankruptcy works.

Take the first step towards financial freedom. Contact me right now to set up your initial consultation. There are no obligations and you will feel better after we talk.