The bankruptcy attorneys at Dennery Law understand that lines of credit, factoring agreements, and merchant cash advances help improve cash flow in the short term. Over the long term, the steep interest rates, deeply discounted future sales, and rapid repayment terms create a liquidity crisis. Cash flow becomes a concern and directly impacts the small business owner’s ability to maintain inventory, produce goods, and motivate key employees. Razor-thin margins quickly turn into operating losses that no amount of labor or additional loans can overcome. Add to that a pandemic, an unreasonable landlord, and arrears with critical trade vendors or on sales taxes – the future of the operation is at risk. It’s easy to see why a majority of small businesses fail within the first five years of opening.
Opening and growing a small business takes hard work and fearlessness. Turning a small business around into a profitable venture requires an open mind, focus, and experienced advisors. Successful small business owners accept the challenge and make the changes necessary to turn around, recover and emerge from periods of financial hardship. The process begins with a realistic assessment of your business prospects and knowing what options are available to resolve the issues.
The mission of the small business bankruptcy attorneys at Dennery is to guide small business owners, sole proprietors, family farmers through a reorganization of their business debts or the liquidation of their business assets, so that you, the small business owner, can recover from and succeed after a business interruption or a period of financial distress. As small business bankruptcy attorneys and small business owners, we have first-hand knowledge of the challenges faced by small business owners. Dennery Law has considerable experience with handling a liquidity crisis, credit workouts, distressed sales, and financing acquisitions or expansions through two-party transactions or in the context of a business bankruptcy case.
Options to adjust business debts.
At the point where keeping up with business loans, aging payables, and/or rent arrears is impairing day-to-day operations or business growth, most small business owners have a very narrow window within which to act before the shortfalls become insurmountable. Many small business owners resort to cutting costs at the expense of sales and marketing or even quality and service. Even worse, small business owners often borrow more money from merchant lenders, or against their personal credit to support the operations… and the vicious cycle continues. Small business owners should know that credit workouts, small business liquidations, and reorganizations are available and can work to break the vicious cycle.
Negotiating with your trade creditors, a landlord, and/or business lenders is by far the most cost-effective approach to mitigate short-term losses and shortfalls. Rather than borrowing more to climb out of a hole, creditors are open to negotiating lowering interest rates, longer repayment terms, and/or alternative refinancing. After all, creditors stand to gain more if their small business borrowers continue to operate and make some payments rather than from defaults or business closures.
“Easier said than done.” you may say. It is true that renegotiating payment terms requires cooperative creditors and a lot of time and effort that is better devoted to your customers and your employees. Moreover, negotiating with one or two creditors may not get you where you need to be. Often, what is required is collective action with multiple parties, and in some cases legal action to appeal agency decisions or unfair commercial practices.
Small Business Chapter 7 Liquidation
A Chapter 7 small business bankruptcy is a legal process that allows for the orderly liquidation of company assets for the benefit of the business creditors. Chapter 7 is the right choice when you decide to dissolve the company, cease operations and salvage the value in the remaining assets. A Chapter 7 small business bankruptcy is not the end of the road, but rather a mechanism used by savvy operators who need to tie up loose ends and move on with life and/or a new venture.
Under a small business Chapter 7 bankruptcy, a trustee is appointed by the court to gather, assess, and liquidate all of the company assets. The net proceeds from the liquidation are used to pay business creditors first; any amounts remaining are owed to the owners of the business. The Chapter 7 Trustee is required to carefully review company records. Certain transactions can raise a red flag and result in bankruptcy litigation against you, your affiliates, or your creditors.
Without the appropriate guidance, your dream of relief and a fresh start can quickly turn into a nightmare. When properly planned, a small business Chapter 7 bankruptcy is an effective way of resolving all issues with business creditors. Filing a small business Chapter 7 bankruptcy ensures that:
- Business creditors, landlords, and taxing agencies stop enforcement actions
- Proceeds from the sale of business assets are distributed fairly amongst employees, contractors, and creditors.
- Creditors with personal guarantees are satisfied to the fullest extent possible by business assets rather than the owner’s personal income.
Small Business Chapter 11
Chapter 11 allows your small business time to turn around, recover, and emerge from a period of financial distress or a liquidity crisis. If the plan is to sell the business but you need to reduce or eliminate your liabilities to make the sale worthwhile, Chapter 11 gives you the option to maximize your recovery by marketing your business as an “ongoing concern.” On the other hand, if your plan is to continue to operate and grow your business, but your debts or some burdensome contracts or leases are creating losses or making it impossible to grow, a Chapter 11 allows you to reorganize your debts and emerge leaner, meaner and more profitable.
Unlike Chapter 7, the business owner is designated as a “debtor-in-possession” in Chapter 11 small business case. This means that the small business owner has the authority of a trustee and is empowered to develop and proposes a plan of reorganization that among other things:
- Reduces debts and lowers payments to business creditors;
- Modifies payment terms on arrears to taxing agencies, vendors, landlords, and business lenders.
- Attracts new investments and loans that can promote the successful reorganization of the small business.
Family Farmers and Chapter 12
Chapter 12 offers special protections and flexibility to family farmers experiencing financial hardship. If at least 50% of your debt and 50% of your income are related to farming operations, you, individually or jointly with your spouse, your LLC, or a partnership can file without the expense and complications of chapter 11. In some cases, a family farmer can even reduce the balance and the payments under a mortgage against a residence – a benefit that is unavailable in a personal bankruptcy filed under Chapter 7 or 13.
Under Chapter 12, family farmers can among other things:
- Stop foreclosures and catch up on late mortgage payments.
- Reduce or eliminate unsecured personal and business debt.
- Catch up on past-due trade accounts.
- Negotiate better terms with secured lenders and taxing agencies.
The small business bankruptcy attorneys at Dennery Law guide you with your decision on what approach to take to resolve your small business debts. Let’s talk about how our small business bankruptcy attorneys can help your small business turn around, recover and emerge from hard financial times. In-person or remote appointments are available on weekdays, evenings, and weekends in Lexington, Louisville, and Northern Kentucky.
SCHEDULE A CONSULTATION, or Call 859.445.5495.