Reorganizing An Individual’s Business Under Chapter 13

An individual business can reorganize through a Chapter 13. The one  limitation is that secured debts must be under $1,184,200 and unsecured  debts must be under $394,725. If the debts exceed these amounts the  individual will have to file a Chapter 11 to reorganize the business.

The benefits of a Small Business Chapter 13

  1. The  filing of a Chapter 13 imposes the powerful Automatic Stay against all  creditors including the IRS from taking any action to collect pre-filing  debts. It provides immediate relief. The Automatic Stay also prevents  threatened repossessions.
  2. The costs including the filing  fee and lawyer’s fee are very reasonable; it is very inexpensive to  start and actually file a Chapter 13. The current Court filing fee is  $310. Attorney fees in Chapter 13 are usually a flat fee. Part of the  lawyer’s fee can be included in the Chapter 13 payments itself. The  total costs are remarkably lower than Chapter 11 cases.
  3. Individual  business owners are generally not required to fill out the Means Test.  The exception being if consumers debts (and home mortgages and student  loans are considered consumer debts) are greater than the business  debts. Payroll taxes are not consumer debts.
  4. A Chapter 13  plan has the power to cram down under-valued, secured property and  impair unsecured debts. In other words, let’s say, a printing press is  worth $10,000 with $15,000 debt. It can be repaid at the value rather  than the amount owed. It is possible to cram down an auto loan if it is  clear that the vehicle is used for business purposes.
  5. A  Chapter 13 allows you get rid of unwanted property. One can owe a great  deal of money on a “junk” car or possibly an antiquated piece of  machinery. The secured debt can be converted to an unsecured debt.
  6. If  property has been recently repossessed it can be recovered upon filing  the case. This most frequently happens with automobiles.
  7. The  tax man may be at your door but in a Chapter 13 IRS and other tax debts  can be paid over a long period of time. Also, interest and penalties  stop accruing.
  8. Frequently, impaired debts (general  unsecured debts) can be paid at a fraction of the amount due. Unlike  impaired creditors in Chapter 11 to be discussed later, creditors do not  vote on the Debtor’s plan. However, creditors and the Chapter 13  trustee can raise objections to the proposed plan. The essence of the  plan is that it treats creditors fairly and will pay general unsecured  creditors as much or more than if the individual filed a Chapter 7.

The  individual owning the business must list all assets and liabilities for  themselves since the business does not have any separate debts. The  plan must deal with all the debts.

The  Chapter 13 client must complete schedules that show future income and  expenses and the ability to handle to monthly Chapter 13 payments.

Chapter  13 cases are administered by a Chapter 13 trustee. It is certainly best  that the trustee approve the Chapter 13 plan. This is accomplished by  being well prepared when the case is filed.

Business  assets must be itemized and valued. There must be a basis for the  valuations. The trustee may well want an itemization of the purchase  price of business assets as well as the date purchased. Depending on the  business it may best to have an outside appraiser submit a detailed  appraisal.

A successful Chapter 13  requires preparation to provide as much detail to the trustee, the court  and interested creditors as possible. An experienced bankruptcy lawyer  will guide you through the entire process.

Examples of a possible plan:

The  owner of cab medallion files a Chapter 13 and the current balance to  the finance company is about $250,000 while cab medallions have a value  of about $60,000 to $65,000. A Chapter 13 can be crafted for about  $1,500 per month for 5 years. At the end of the 5 year Chapter 13 plan  the client will own his medallion free and clear of all debts.

Our  client operates a small restaurant that mainly served lunches. Her  unsecured debts exceeded $200,000. She was ready to throw in the towel  and file a Chapter 7 and walk away from the restaurant. With our advice  and counsel she instead filed a Chapter 13. The confirmed plan provided  for a payment of only $200 for about 48 months. The Chapter 13 plan has  been completed; her debts discharged; and she has kept her restaurant.

The  law office of Robert J. Adams & Associates has proudly represented  and helped individually owned businesses through the Chapter 13 process  for decades. And, we want to help you.

For more information on Reorganizing Businesses Under Chapter 13, a Complimentary consultation is your next best step. Get the information and legal answers you are seeking by calling today.

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