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Business Bankruptcy FAQ

June 11, 2021

The universe of corporate bankruptcy law can be intimidating and complicated. Here are answers to some of your most pertinent questions about business bankruptcy.

Q. What Is Business Bankruptcy?

A. When a business has monetary liabilities that exceed their assets or is unable to fulfill financial obligations, the company may need to file for bankruptcy protection. If not bankruptcy protection, then they need to come to an arrangement with their lenders regarding payment. Bankruptcy proceedings are initiated by the debtor or the lender (called an involuntary bankruptcy). For example, lenders possibly included in bankruptcy are:

  • Guaranteed lenders (those with a lien on your property)

  • Unsecured lenders (sellers, credit card firms, and others with no security interest in your property)

  • Judgment lenders (lenders that sued and received a judgment against the debtor before the bankruptcy filing)

  • Lenders with priority claims (those with precedence over other lenders due to specific rules under bankruptcy law)

  • Lenders with administrative claims (lenders, including accountants or attorneys, with precedence due to their support in the bankruptcy filing).

Q. Can A Business Settle A Debt With A Lender Outside Of The Court System?

A. Company workouts are resolutions between a business and its lenders that meet the companies’ debts, allowing it to continue operation. Also called bankruptcy prevention, these arrangements are made outside the court system before a bankruptcy is filed. Ultimately, if a workout unachievable, the business may need to move forward with a bankruptcy.

Q. How Will Bankruptcy Proceed?

A. Filing a bankruptcy petition only begins a legal proceeding with no promises regarding the results. So, there isn’t any guarantee that the court will accept the bankruptcy. If the courts allow your bankruptcy to go forward, then a resolution will be worked out with your lenders to meet part or all of your debts.

Although bankruptcy has a bad reputation, it actually benefits the debtor along with lenders. This is because some or most of a company’s unsecured debt won’t be paid out under a bankruptcy proceeding. Tax debts and secured debt, however, will typically be paid back in full. For more information about how to file a business bankruptcy, or whether a business bankruptcy will benefit your company, don’t hesitate to contact Joel M. Aresty, P.A. Contact Attorney Aresty’s office today to schedule a consultation to discuss your company’s unique needs and what your next step should be. Call (305) 904-1903 or toll free at 1-855 DOC LAWS.