Nine Options for Businesses With Debt Problems.

Are you trapped running your business because, if you close it, you will owe debts you cannot pay like SBA loans, leases, suppliers, personal guarantees for a corporation, personal loans from friends, relatives or investors? Do you feel like you have the Tiger by the tail and you don’t dare let go or it will eat you?

If you have a business in trouble, you are not alone. Your businesses has likely seen its’ income drop significantly and you can cut only so much overhead. Often even working for free is not enough. Instead of supporting you, you support it until you run out of money and destroy the relationships that are most important in your life.

Many businesses, especially small businesses, have been crushed by the “Great Recession” downturn in the economy. Even big companies like Mervyns, Border’s Books, KB Toys, Circuit City, Gottschalks and, most recently, Radio Shack have all gone out of business even though the economy has supposedly improved. In fact, in 2014, the Sacramento Region had the highest small business failure rate of any region in the country.

I am Gary Fraley, founder of Fraley & Fraley Sacramento Bankruptcy Attorneys. I am a California State Bar Board of Legal Specialization Certified Bankruptcy Law Specialist with over a third of a century helping business owner’s deal with money problems.

Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Debt Negotiation & More for Small Businesses With Debt

Depending on your situation, these options can be negotiating with your creditors to reduce your payments, settling your debts, Chapter 11 bankruptcy reorganization, a Chapter 13 bankruptcy reorganization plan or Chapter 7 Bankruptcy.

If you are like most of my business clients, you have done everything possible to hold on. Unfortunately, lack of income and the size of the debts are probably taking a physical and emotional toll on your health. On top of that, the stress may also be damaging your relationships with others. Financial problems are a major factor in 99% of all failed relationships and divorces.

If your business is in financial trouble, you have nine possible options available to you.

More of the Same

1. The first would be to continue to run the business, work even longer hours, and try to increase the business income.

You have probably already tried everything you can think of on that score. You may struggle along and hope that things will somehow get better and hope you will somehow find a way to pay your debts, just as you have been doing.

2. The Second possibility is to try to reduce operating expenses.

Again, you have probably already done that.

Negotiation With Your Business Creditors

3. The Third possibility is negotiating a workout with your creditors.

If your business income covers your operating expenses, but you cannot cover the debt load, make lease payments, and still put food on the table, this may be a solution that could keep you in business. Unfortunately, if you have already tried negotiating with your landlord and other creditors, you probably had little or no success.

Bankruptcy as a Negotiation Tool With Business Creditors

4. The Fourth choice is to hire a skilled bankruptcy and debt negotiation lawyer to represent you.

An experienced bankruptcy attorney often can make deals and workouts that your creditors would not be willing to do with you. Quality legal representation may change the results dramatically in your favor.

No attorney can promise you someone else is going to make a deal with you. However, your best chance of getting the creditor to make a deal is if a skilled bankruptcy and debt negotiation lawyer represents you.

Teddy Roosevelt had a saying: “speak softly… and carry a big stick” Your bankruptcy and debt negotiation attorney can be that “big stick.”

Often creditors realize you are serious when you have hired a bankruptcy attorney. If they want their money, they will have to work with you. If the Landlord or creditors refuse to work with you, we can point out that, if you file Chapter 7 bankruptcy, they will likely end up with little or nothing for their foolishness.

Chapter 11 Bankruptcy for Sole Proprietorship Small Businesses With Debt

5. The fifth choice would be to file a Chapter 11 bankruptcy reorganization.

Other than major corporations, they are seldom successful. In addition, Chapter 11 Bankruptcy is extremely expensive, typically costing $10,000-$100,000 or more up front just for legal fees.

Additionally, you will also pay large ongoing payments to the U.S. Trustee’s office on top of whatever you end up paying creditors. Most businesses with financial problems simply cannot afford a Chapter 11 bankruptcy.

On top of all that, your creditors get to vote on whether they approve your plan, or even propose their own plan if the one you propose is not approved.

Chapter 13 Debt Reorganization for Sole Proprietorship Small Businesses

6. Your sixth option, if you meet the qualifications, would be to file a Chapter 13 bankruptcy debt reorganization plan.

Corporations, Limited Liability Companies, and Partnerships cannot file a Chapter 13 bankruptcy reorganization. Only a real human people (an individual or married spouses) are allowed to use Chapter 13 bankruptcy.

There are limitations as to the amount and type of debts a person or married couple can have and still use Chapter 13. The maximum amount of “unsecured debt” is $3xx,xxx. The maximum “secured debt” a person. The definition of “unsecured” and “secured” debts is very technical and are not what the average person would think. Some “secured” debts can be both “secured” and “unsecured.” Let a competent bankruptcy attorney determine if you qualify for Chapter 13.

You may keep the business open in Chapter 13 bankruptcy while controlling some debts and wiping out others.

In Chapter 13, you do not have to negotiate with creditors because Chapter 13 bankruptcy has “cram down provisions.” They are called that because we get to cram it down the creditor’s throats. They do not get to vote on your plan.

If your plan meets the Chapter 13 requirements, and you can make the plan payments for 3 to 5 years, the bankruptcy court will approve your plan.

Technically, you cannot modify a lease in Chapter 13 reorganization unless the Landlord agrees. However, if your Landlord does not work with you, you may be able to get out of the lease and potentially find a better deal elsewhere.

If you go into a Chapter 13 business reorganization, and we show the landlord that their lease will be wiped out if you convert to Chapter 7 bankruptcy, the landlord may be more willing to work with you.

Closing the Business and Moving On With Life

7. Your Seventh choice is to close your business.

That may be the only real option you have if the business cannot support itself any longer, or if keeping it open no longer makes sense.

I know it is painful to close a business you’ve put your heart and soul into. This is especially true when it leaves you with personal and business debts, loan guarantees, mortgages and lease obligations.

The advantage is you can quit being a slave to the business. You can use you time to perhaps earn income from somewhere else. You can also refocus yourself on personal relationships that may be stressed because of your financial problems.

I see clients all the time that would make more money to put food on the table and gas in the car if they worked part time at a fast food restaurant.

You can then wait to see what happens or try to pay your debts from what you earn elsewhere.

Sadly, what normally will happen is you and those around you get the constant and unrelenting phone calls, threats and harassment. Then you end up sued by the creditors. That certainly is not the result that you want or need.

Selling Assets or Borrowing to Pay Business Creditors. The Road to Poverty

8. Your 8th option is cashing out or selling assets.

You may try borrowing against IRAs, 401(k)s, retirements, life insurance policies or your home to pay creditors.

If you do that, you are selling yourself and those that rely on you into poverty, even risking the roof over your head. Remember, you worked hard for these things so you would have them to pay for the kids college tuition or for you (and your spouse) to retire on. Do not let someone con you into stealing from your future and theirs.

Seldom does selling or borrowing against your assets result in a long-term solution to your debts.

Sadly, I see clients all the time who threw away tens of thousands of dollars, and in many cases hundreds of thousands of dollars, that would have been safe from creditors in bankruptcy trying to pay debts that did them absolutely no good. That money would have been better spent providing for their families future after a Chapter 7 bankruptcy discharge.

When all is said and done, people who borrow or sell things to pay creditors still end up in my office filing a Chapter 7 bankruptcy.

Even worse, many end up with only social security to live on. With the uncertainty of what, if anything is going to be there when you become entitled to social security it is not a gamble worth taking.

Keep in mind, if you file a bankruptcy, and later have money, you can pay anyone you want to including your friends and relatives. It is just that the creditors cannot harass you, demand money from you or sue you.

Chapter 7 Bankruptcy, the Final Option to Get Rid of Business Debts

9. The 9th and final option is filing Chapter 7 bankruptcy.

This will rid you of most if not all of your personal and business debts.

Some of my clients have actually filed a Chapter 7 bankruptcy and reopened with a “new” business similar to, or exactly like their “old” business. Essentially they started over in business without their debts holding them back.

Sometimes, however, you just need to move on with your life.

If you are afraid that you will have things taken from you in bankruptcy, don’t be. In almost every case, my clients keep everything they own. If there is anything at risk, an experienced bankruptcy attorney can help you protect the value of those assets.

Before you spend money trying to pay down debts, let me help you by giving you the advice you need.

If you are not in Northern California and the Central Valley, you can call my office anyway. We will recommend an attorney in your region or tell you how to find a good one where you are.

I will show you how to best use your money and help you get a fresh start for you and those most important to you.

Free E-Book on Common Mistakes Made by People & Small Businesses in Trouble

Before you do anything or make any financial decisions, do yourself a favor. Go to my home page on this website, SacramentoBankruptcyAttorneys.com and download my free e-book “48 Dos & Don’ts When Considering Bankruptcy.”

Reading it and following the advice could easily save you from making tens of thousands of dollars of bad decisions that you will regret later. It can keep you from hurting people you care about because you paid them money you owed them only to have the Bankruptcy Court take it away from them later.

Some of the advice will be just opposite of what would seem to be common sense. When it comes to bankruptcy, if you act based on common sense, what you do will almost always be wrong.

Fraley & Fraley, Sacramento Bankruptcy Attorneys, or a skilled bankruptcy attorney in your region, help you learn about your bankruptcy and debt negotiation options. They just may save your business or free you from it.

By freeing yourself from your personal and business debts, you may even save a personal relationship that is in trouble.

If you are in the Sacramento or Northern California region, give us a call at (916) 485-5444 to set your free consultation with either myself, or my highly skilled associate attorneys, not a paralegal.

In our law office, the average consultation lasts an hour to one and one half hours. Most attorneys will schedule 20 minutes to an hour for their consultation. Many won’t even have you come in unless you are hiring them. All they do is a phone call, a sales pitch, and a fee quote.

If you are wondering why we schedule longer initial consultations than most other bankruptcy lawyers, it is because the appointment is not a sales pitch. The purpose of the consultation is to give you real, honest and immediately useful information.

If you are looking at attorneys outside of Northern California or the Central Valley of California, always choose one that is a State Bar Certified Bankruptcy Law Specialist. If an attorney claims to “specialize in bankruptcy” ask them what government entity certified them as a specialist. Lots of so-called “specialists” are only using the term for marketing and are not Certified by the State Bar as a Bankruptcy Law Specialist.

At Fraley & Fraley, Sacramento Bankruptcy Attorneys we welcome you and appreciate the opportunity to help you learn your Chapter 7 bankruptcy, Chapter 13 debt reorganization and business debt negotiation options so you can choose what works for you.

There is a saying, “Knowledge is power. Isn’t it time you got your power back?”

Take back control of your life from creditors by: calling Fraley & Fraley, Sacramento Bankruptcy Attorneys NOW at (916) 485-5444 or (800) 675-1005; or click on the “contact us” button on this web page to schedule your free bankruptcy attorney consultation and explore the options for Businesses with debt.