Business Bankruptcy Lawyer in Concord, North Carolina
Running a business involves many challenges, and sometimes, despite a company’s best efforts, financial difficulties may arise that lead to the consideration of business bankruptcy. Business bankruptcy in North Carolina is a legal process that allows a company struggling with debt to reorganize or liquidate its assets to satisfy creditors.
The process is governed by both federal and state laws, with North Carolina’s specific statutes providing additional guidance for local businesses. If you’re a business owner in North Carolina facing financial hardship, understanding your options under business bankruptcy law is crucial.
Our firm at Ferguson Hayes Hawkins, PLLC is committed to assisting businesses in Concord, North Carolina, through the bankruptcy process, providing personalized legal services designed to protect the interests of business owners and help them find a way to recover or resolve their financial obligations.
What Is Business Bankruptcy?
Business bankruptcy refers to the legal process a business undergoes when it is unable to pay its debts and seeks protection or relief under bankruptcy laws.
The purpose of bankruptcy is to provide a legal method for businesses to either reorganize their operations and debts or liquidate their assets in an orderly manner to pay off creditors.
Depending on the situation, a business might file for bankruptcy under Chapter 7, Chapter 11, or Chapter 13 of the U.S. Bankruptcy Code.
Each chapter offers different approaches and benefits for businesses depending on their size, structure, and the type of relief they are seeking. Under North Carolina law, business owners have several options available when considering filing for bankruptcy.
Types of Business Bankruptcy
Under federal law, the most common types of bankruptcy for businesses are Chapter 7, Chapter 11, and Chapter 13. Each offers a distinct approach to dealing with financial distress:
Chapter 7 Bankruptcy – This type of bankruptcy is designed for businesses that are no longer viable and wish to liquidate their assets to pay creditors. Chapter 7 involves the sale of the company’s assets, with the proceeds distributed to creditors. Once the liquidation process is complete, the business is dissolved.
Who should file for Chapter 7? Businesses with little hope of recovering or reorganizing often file for Chapter 7. If the debts outweigh the assets and the company is unable to continue operations, liquidation may be the only option.
Chapter 7 is often the final option for businesses that cannot feasibly continue operations.
Chapter 11 Bankruptcy – Chapter 11 bankruptcy is commonly referred to as a reorganization bankruptcy. Under this chapter, a business can restructure its debts and operations to attempt to regain profitability while still continuing to operate.
Who should file for Chapter 11? Chapter 11 is typically suited for larger businesses that have the potential to turn around but require time to adjust their operations, renegotiate contracts, or reduce expenses.
This chapter provides a chance to reorganize debts, but it can be a lengthy and expensive process.
Chapter 13 Bankruptcy – While Chapter 13 is generally designed for individuals, some small business owners who operate as sole proprietors may also use this option. Chapter 13 allows for the reorganization of debts under a repayment plan that lasts between three to five years.
Who should file for Chapter 13? Chapter 13 is ideal for sole proprietors or small business owners who do not want to liquidate their assets but need time to catch up on overdue debts.
This chapter may also be appropriate for businesses where the owner’s personal assets are entangled with the company’s debts.
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The Process of Filing for Business Bankruptcy in North Carolina
The bankruptcy process in North Carolina follows federal bankruptcy law, but there are specific procedural rules that apply within the state. If you’re considering filing for business bankruptcy in North Carolina, here are some important steps you’ll likely encounter:
Consult With a Bankruptcy Attorney
The first step in the bankruptcy process is to consult with an attorney who are knowledgeable about business bankruptcy.
Our attorneys at Ferguson Hayes Hawkins, PLLC offer comprehensive legal services to help businesses in North Carolina understand their options, assess their financial situation, and determine which type of bankruptcy is most appropriate.
During this consultation, your attorney will review the company’s financial records, including assets, liabilities, income, and expenses. The goal is to determine whether bankruptcy is the right course of action and, if so, which chapter should be filed under.
Filing the Petition
Once a decision has been made to pursue bankruptcy, the business must file a bankruptcy petition with the U.S. Bankruptcy Court for the Western or Eastern District of North Carolina. This petition includes detailed financial information, including a list of creditors, the amount of debt, and the value of the business’s assets.
When a petition is filed under Chapter 7, the business may also be required to submit a statement of its intention regarding any assets that it wishes to retain. Under Chapter 11, the business will file a plan of reorganization that outlines how it intends to repay its creditors.
Automatic Stay
After the bankruptcy petition is filed, an automatic stay goes into effect. This means that creditors must cease all collection activities, including lawsuits, garnishments, and foreclosure actions. The automatic stay provides the business with relief from creditor pressure while it goes through the bankruptcy process.
Meeting of Creditors
After filing for bankruptcy, the business will attend a meeting of creditors, also known as a 341 meeting. This meeting is conducted by the bankruptcy trustee, who will ask the business owner questions regarding the financial situation and the bankruptcy petition. Creditors may also attend the meeting and ask questions if they wish.
Reorganization or Liquidation Plan
Depending on the type of bankruptcy filed, the next step involves either a reorganization plan (for Chapter 11) or a liquidation plan (for Chapter 7). Under Chapter 11, the business will work to propose a plan that outlines how it will repay its creditors over time.
The creditors and the court must approve this plan before it is enacted.
For businesses filing under Chapter 7, the bankruptcy trustee will oversee the liquidation of assets, selling off the company’s property to pay back creditors as much as possible.
The company will ultimately be dissolved once the liquidation process is complete.
Discharge of Debts
If the bankruptcy process is successful, the business will receive a discharge of debts, meaning that the company is no longer legally obligated to repay certain debts. This discharge can help a struggling business either move on from financial distress or reorganize for future success.
However, not all debts are dischargeable under bankruptcy, so it is important to understand which debts may remain after the bankruptcy case is resolved.
Impact of Business Bankruptcy in North Carolina
Filing for business bankruptcy in North Carolina can have significant consequences for the company and its owners. Some of the key impacts of business bankruptcy include:
Impact on business operations: Under Chapter 11, a business may continue operating, but it will need to reorganize its operations, reduce expenses, and negotiate with creditors. In contrast, Chapter 7 bankruptcy will result in the liquidation of the business’s assets and the dissolution of the company.
Personal liability: Business owners may face personal liability if they have personally guaranteed any of the business’s debts. In North Carolina, if a business owner has personally guaranteed debts, they may be required to pay those debts even if the business is dissolved in bankruptcy.
Credit implications: Bankruptcy will affect the company’s credit rating, and it may be difficult to secure financing in the future. However, for businesses that file for Chapter 11, the reorganization process can eventually help improve the company’s creditworthiness.
Effect on employees: In some cases, bankruptcy may lead to layoffs or reductions in the workforce. Chapter 7 may result in the closure of the business, while Chapter 11 may involve downsizing or restructuring to reduce costs.
When to File for Business Bankruptcy
Filing for bankruptcy is a major decision that should not be taken lightly. Business owners should carefully evaluate their financial situation and consider all available options before pursuing bankruptcy. Some signs that it might be time to file for business bankruptcy include:
Persistent cash flow problems and an inability to pay creditors
A significant decline in revenue or profits
A high volume of debt with no clear plan for repayment
Lawsuits, garnishments, or other aggressive collection actions by creditors
The inability to obtain new financing or credit
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Business bankruptcy in North Carolina is a legal tool that can provide financial relief to companies struggling with debt.
Reach out to us at Ferguson Hayes Hawkins, PLLC for more information in Rowan County, Stanly County, Cabarrus County, Concord, Kannapolis, Salisbury, Albemarle, or Harrisburg. We’re here to help, so call us right away.