Business can't afford secured loan payments. Bankruptcy and reemerge as another company or Chapter 11 BK?

Asked about 2 years ago - Gilbert, AZ

Business has $350k+ in secured loans and $100k in unsecured (credit cards). Unable to pay secured loans while staying current with vendors and payroll. Monthly payments for secured loans is $10k+ Loans guaranteed with business assets and Personal Guarantee. Current inventory and business assets worth $200k. All debt incurred prior to marriage in community property state. Considering BK CH 11 or liquidating and walking away. Will need to form new business or keep existing business without the debt. Existing/new company could be profitable without the extreme debt liabilities. Advice?

Attorney answers (6)

  1. Diane L Drain

    Pro

    Contributor Level 15

    4

    Lawyers agree

    Answered . I agree with attorney Begley. You must talk to an attorney who is experienced in both chapter 7 and chapter 11 cases. I am happy to give you some referrals if you like.

    Please understand that bankruptcy is a very complicated process. It is wise to talk to an experienced bankruptcy attorney before deciding to take this important step. Most Arizona bankruptcy attorneys offer a free consultation about the basics of bankruptcy. I am attaching a link to some free videos that explain how bankruptcy works.

    Please take time to educate yourself about bankruptcy and to determine which attorney is the best to assist you in the process. Don’t assume the attorney is being completely honest about their experience and capabilities. Check them out. Avoid the attorneys who advertise on TV or profess a 100% success rate in their Internet ads. It costs hundreds or thousands of dollars for these ads and someone has to pay for them – the clients. These attorneys mass produce the work and do not offer the client the hands on assistance that is necessary in a well-planned bankruptcy. Normally these firms assign all or most of the work to paralegals and the client rarely talks to an attorney.

    When interviewing the attorney ask them how long they have practiced bankruptcy law. Ask what percentage of their practice is focused on consumer work. Ask whether they are experienced in both chapter 7 and chapter 13 cases. Ask the attorney for references. Ask about their policy of returning phone calls. They should be committed to answering specific questions about your situation and help you understand your options. If, after talking with them you are still confused about the issues you raised, find another attorney. Check them out with the various ranking sources: such as www.AVVO.com, and the State Bar. An attorney is should be your guide through this process. They should educate you, be there to assist you in how to avoid pitfalls and help you plan for your future after bankruptcy. There are hundreds of “bankruptcy” attorneys in Arizona. Of those just a few will fit the criteria set forth above. Again, bankruptcy is a very complicated process and you want to use an attorney who will be there when you need them.

    My best to you.

    This firm is in the business of helping people and companies file for bankruptcy protection. Therefore, the... more
  2. Scott L Greeves

    Contributor Level 11

    2

    Lawyers agree

    Answered . It is important to consult with a skilled debt settlement / bankruptcy lawyer in this type of situation. There is not a cookie cutter answer to your question. My firm offers a free consultation to people in your exact situation. Seeing a lawyer in these types of circumstances is critical.

    I won't get into details here - but my law partner has written a free bankruptcy e-book you might want to download from this link: http://grattorneys.com/the-whole-truth-about-ba...

    Mr. Greeves is licensed to practice law throughout the state of Arizona. His office is in Tempe. His phone number is 480-422-1850 or his email address is scott@gprlaw.net. His website is www.grattorneys.com.

    Mr. Greeves is licensed to practice law throughout the state of Arizona. His office is in Tempe. He is authorized... more
  3. Jason Chandler Farrington

    Contributor Level 7

    2

    Lawyers agree

    Answered . I agree with the others that you will need to consult with an attorney to get a complete answer to your question. Chapter 11 will allow you to significantly reduce your debts through a plan of reorganization. In the case of your business, you may be able to reduce your secured debt down to the value of the collateral and pay some fraction of the unsecured debts over a five year period. However, eliminating a portion of your business debt, whether through Chapter 11 or Chapter 7, will likely trigger the personal guaranties and cause you to have to consider personal bankruptcy as well. The fact that you mentioned that the debt was incurred prior to marriage leads me to believe that you have already considered personal bankruptcy and that you are thinking that only one spouse may file. This is possible, but can be tricky since, as you noted, Arizona is a community property state and 100% of community property (not just the filing spouse's 50%) will be property of the bankruptcy estate even if only one spouse files.

  4. Steven W Zachary

    Contributor Level 17

    2

    Lawyers agree

    Answered . You have a very complicated situation. I have helped many people in the same situation that you are in.

    I can say that you have done the most important step. You asked for help. You need an attorney who is not only familiar with bankruptcy laws but also has experience in business formation, dissolution, employer liability.

  5. Patrick Begley

    Contributor Level 14

    3

    Lawyers agree

    Answered . Your situation is going to be much too complicated to answer on this forum. You need to consult with a local bankruptcy attorney who has expertise in both Chapter 7 and 11. Whether to do a Chapter 7 or Chapter 11 really hinges on the company's long-term viability. If the business isn't viable, since you have personally guaranteed these loans, there is a good chance that you should look into filing a personal Chapter 7. But this is all going to depend on your specific situation. Local bankruptcy counsel can guide you.

    I wish you the best of luck.

    The information provided in this post is not "legal advice." Rather it is general information on common legal... more
  6. Justin Michael Luna

    Contributor Level 4

    2

    Lawyers agree

    Answered . I echo the other responses below. You have a number of legal issues with moving factual parts as they pertain to a thorough Chapter 11 analysis: (i) motions to value: (ii) injunctions/releases through a confirmed plan; (iii) classification of claims; (iv) feasibility; (v) new value; (vi) liquidating plan; and other state law corporate issues. Best bet is to contact an experienced bankruptcy attorney near you.

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