Business bankruptcy is different from personal bankruptcy and has different rules. First of all, business bankruptcy is handled in federal court. It allows businesses to reorganize their debts and structure repayment plans with creditors. If it is not financially possible for a business to continue operating, bankruptcy provides a method by which to liquidate its assets and distribute them among creditors.
Things to Consider When Filing: Chapter 7 or Chapter 11
Your path will depend upon the structure of the business.
- Chapter 7 bankruptcy filing in Minnesota involves liquidating all of a company’s non-exempt assets to pay creditors. It is mostly used for small business filings.
- Sole proprietors can file Chapter 13 bankruptcy to reorganize both personal and business debts.
- Partnerships or corporations file Chapter 11 to reorganize large debt. No trustee is appointed, but the bankruptcy estate remains subject to the supervision of the bankruptcy court. Filing requires debtors to pay the administrative expenses of filing the bankruptcy petition and the claims of secured creditors. A payback plan submitted by the debtor must be approved by the bankruptcy court at a confirmation hearing.
What Happens at a Confirmation Hearing?
The confirmation hearing is similar to other court hearings. Once your case is before the court, creditors or the trustee can raise any objections they have on the plan you provided. The judge will hear both sides and decide whether your plan fulfills the requirements set out in the Bankruptcy Code. The judge will also check to see if all the following confirmation requirements are met:
- Is the plan practical in terms of making the required payments on time?
- Will unsecured creditors get at least the amount they would have gotten had you filed a Chapter 7 bankruptcy?
- Is the plan filed in good faith?
Filing Under Chapter 13
What You Need to Do
- File a repayment plan.
- List creditors’ claims and repayment under the plan.
- List Priority claims granted special status. (Must be paid in full.)
- List Secured claims that involve collateral. (Surrender property or continue making payments.)
- List Unsecured claims. (Listed but have no collection rights)
Priority claims allow creditors to agree with repayment terms; if there is a domestic support obligation, the debtor puts all disposable income into a five-year payment plan.
Secured claims allow debtors to surrender property or continue making payments.
The Bottom Legal Line
What is expected depends a lot on the type of bankruptcy you file and the size of the business; however, they all require a satisfactory repayment plan. If you need to file Chapter 11 in Minnesota, you are probably talking about a more complex business situation. If so, you would be well advised to seek the advice of an attorney.
The Hoverson Law Firm specializes in bankruptcy cases. We are available now to help you sort out the details and requirements. Call us now for an appointment at (612) 349-2728.