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Business Bankruptcy Laws

What is business bankruptcy?

Business bankruptcy is a process where a business can get rid of or repay some or all of their debt under the protection of a federal bankruptcy court. In many cases bankruptcies can be divided into two different types, one being liquidation and the other being reorganization.

What is chapter 7 business bankruptcy?

When a business is starting to fail or is so far into debt that they cannot continue to run the business, the owners of that business normally file for a Chapter 7 bankruptcy claim. The chapter 7 bankruptcy is also known as liquidation. The bankruptcy court assigns a representative that sells the company’s assets for money and then delivers the proceeds to the creditors. Even though the court assigns a representative the court also creates a bankruptcy estate. These bankruptcy estates give the court and the representative the power to over look and handle all the company’s financial matters. In many cases the bankruptcy court may approve the representative to run the business for a certain amount of time, this operation normally benefits the creditors and improves the liquidation of the estate. Normally a Chapter 7 representative will be responsible for selling all the assets and dividing the proceeds to the creditors after administrative and the legal expenses have been paid.

If someone’s key supplier is going to file for bankruptcy do they still need to pay for products that are shipped to the S Corporation before they go to court?

The S Corporation would still be responsible for any debt. The bankruptcy will only affect the corporation if the supplier would owe the corporation money. Any and all money that the corporation owes to the supplier will go to the bankruptcy representative if the bankruptcy as been filed and will be in possession of the bankruptcy estate, that is if the corporation pays before the bankruptcy is filed. Now, if the corporation doesn’t pay it would be like any other debt that is accumulated where the corporation could be in subject to collection from either the supplier or the bankruptcy representative.

If a company closes down with no income coming in, is there anything that will protect the company while it tries to pay the former employees, and if the company does go bankrupt does the company still have to pay the former employees?

Any claims of the former employees are considered priority claims and can be paid through the bankruptcy if there is any money after liquidating the property, etc. Now if the company is not in bankruptcy the employees can file a wage claim against that employer for the money that is still owed to the employee, the state department of labor will work with the employer and the employees to make sure that everyone is paid, that is if there is enough money to pay them.

What happens when a company has filed bankruptcy and the company does not have the money to pay the employees?

If the employer has no money, then the company cannot pay the employees. Therefore the employees will need to file a wage claim or wait for the company to file bankruptcy and then begin liquidating the assets in order to get enough money to pay all the former employees. Also, the employees can file to put the company into an involuntary bankruptcy, this would be very expensive and often times not worth it if the company is closing and doing this on their own.

When a business files bankruptcy there many options that the business is entitled to, and also there are some requirements a business must meet when starting a business after bankruptcy. All this information can be received by an online Legal Expert.
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Recent Bankruptcy Questions

  • business accounts drained by business partner

    Hi,


     


    there my business partner drained all funds from the business account . We also have an hand shake agreement which is memorized in an email, that each of us will form a different identity and is responsible for his own projects and finances, while we are in the process of breaking up.

    But now he has drained all business accounts . 



    A:

    Can he drain the business accounts without my permissions:
    its a 50/50 Partnership. We have about 4 employees and checks are bouncing now. He kind of is forcing the company into bankruptcy 

    B: 

    Is our hand shake agreement enforceable, it was done in front of two
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  • If I was able to get a bankruptcy removed from my credit records,

    If I was able to get a bankruptcy removed from my credit records, would I have to acknowledge that I have filed for BK in the past on a loan application ?
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    I have 50% ownership in an s-corp business. In Sept of 2012 I had to find other work because the business was on the edge of bankruptcy and the other 50% owner and I determined it would be best if one of us exited the business for cash flow relief. I have not received income from this business since June 2012. The owner who continues to operate the business has cut off all of my access to any financial statements and she is 100% operating the business. I need to transfer my ownership but she refuses any level of communication. I am currently in the process of filing personal bankruptcy to hopefully discharge my liability to creditors as I am co-guarantor on several business loans. I need to get myself out of ownership b/c I continue to incur personal liability because she is not filing business tax returns and Dept of Revenue is in the process of placing a lien on my property due to delinquent filings after the date I exited. ????
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