The past three years have been rocky – to say the least – for small businesses. From the global pandemic to the Great Resignation, business owners have worked overtime to keep their doors open.
If you’re overwhelmed with overdue invoices or struggling to make payroll, you may consider filing for bankruptcy to get financial relief. But, before you do, here are four things small businesses should know about filing for Chapter 11 bankruptcy in Wisconsin.
1. What is Chapter 11 bankruptcy?
Often used by business owners, Chapter 11 bankruptcy is often referred to as a “reorganization” bankruptcy, allowing small business owners to restructure their debt. Here, the debtor (or the small business owner) may continue its business operations while keeping most of its assets. In some instances, the debtor can borrow additional money with the bankruptcy court’s approval.
Any small business organized as a partnership, limited liability, or corporation may file Chapter 11.
2. How does a Chapter 11 bankruptcy work?
Once a Chapter 11 bankruptcy is filed with the court, all collection processes stop (otherwise known as an “automatic stay”). The automatic stay prohibits creditors from pursuing any amounts owed by the small business owner, essentially giving the debtor a chance to reorganize their finances.
For example, the automatic stay will stop payment requests, collections, foreclosures, evictions, and property seizures.
Once a payment plan is finalized with the court, the small business owner will continue to run their business while making monthly payments on the bankruptcy. Once the debtor makes all payments on the payment plan, then all debts are discharged – meaning the small business owner no longer owes any money to the creditors who agreed to the Chapter 11 payment plan.
3. Are there any special rules for small businesses?
The Small Business Reorganization Act of 2019 (SBRA) created new rules for small businesses filing Chapter 11. This new law, which went into effect on February 19, 2020, streamlines the Chapter 11 process for small business owners while potentially decreasing costs. In addition, the SBRA provides more flexibility to small business owners when restructuring their debts.
A qualified Wisconsin business bankruptcy attorney can help determine if the SBRA applies to your small business.
4. What is the difference between Chapter 11 and Chapter 7?
Small businesses may file for a Chapter 7 bankruptcy, which is a “liquidation” bankruptcy. Unlike a Chapter 11 bankruptcy, the business closes and sells (or liquidates) all assets in a Chapter 7 bankruptcy. The proceeds of the sale pay any amounts owed to creditors.
If the small business owner personally guaranteed any debts, then the creditor can pursue those amounts owed from the individual owner. However, if no debts are personally guaranteed, then the business debt goes away with a Chapter 7 filing. There is no payment plan, like in a Chapter 11 bankruptcy.
Business Bankruptcy Lawyer Milwaukee
If you are looking for a business bankruptcy lawyer with experience and knowledge, then you should consider the team at Kerkman & Dunn. We have years of combined experience and we are located right here in Milwaukee, WI. Contact us today!
