July 23, 2019

Reorganizing a Small Business’s Finances

I frequently advise clients who own a small business and find themselves  unable to pay either their personal debts, or those of the company.

Some of the company’s debts may be personally guaranteed by the individual owner(s). These clients often want to discuss filing a personal bankruptcy in order to deal with their own debts, and also want to file a bankruptcy for their business in order to deal with the company’s debts.

Chapter 11 and 13 are two bankruptcy options for business owners

These business owners need financial reorganization strategies. While Chapter 11 and Chapter 13 are discussed in depth on my site, I’ll just say here that both can be used by small business owners to reorganize financially. I generally find that Chapter 11  cases are simply too expensive for mom and pop-type businesses.

“Collapsing the Corporation”

While every situation is different, as a general rule, I find that these kinds of cases are most effectively and cheaply resolved by what I refer to as “collapsing the corporation.”  I have been doing this for a long time, with good success.

If the business is a corporate entity (corporation, limited liability company, etc.), I often recommend that our clients transfer all of the corporation’s assets and all of the corporation’s liabilities to the individual, and then file a bankruptcy case for the individual.

The individual will need to do business as a sole proprietor for an appropriate period of time, and will need to be careful in documenting and otherwise handling the transfer.

This is a wonderful tool for financial reorganization that helps small business owners deal with their business and personal debts in one smooth, affordable process, and is something that must be done while working with a good bankruptcy attorney.

Click this link to listen to my discussion of this reorganizing strategy on a Charlotte web radio program.

High Life Credit Radio interviews Rick Mitchell

This post is not intended to be legal advice.  Bankruptcy law is complex and if not properly executed can make a bad situation even worse. If your small business needs financial reorganization contact a qualified bankruptcy attorney.