Going through commercial bankruptcy in North Carolina is a trying time for any business. When starting a company, the end goal is not to have financial struggles but quite the opposite, to flourish and be successful. However, if bankruptcy is on the table, working with a commercial bankruptcy litigation lawyer at Wilson Ratledge can make the overall process much easier.
What Is Commercial Bankruptcy?
Commercial bankruptcy refers to a legal process that allows businesses in financial distress to reorganize, discharge, or repay their debts under the protection of the bankruptcy court. In the United States, the federal Bankruptcy Code governs bankruptcy proceedings, but state laws can also impact the process.
In North Carolina, as in other states, businesses can file for bankruptcy under several different chapters of the Bankruptcy Code, depending on their circumstances:
- Chapter 7: This is often referred to as “liquidation” bankruptcy. In this process, a trustee is appointed to sell the business’s non-exempt assets, and the proceeds are used to pay off creditors. Any remaining debts are usually discharged. Chapter 7 is typically used by businesses that cannot continue operating and have no feasible way to restructure their debts.
- Chapter 11: This is commonly known as “reorganization” bankruptcy. It allows businesses to restructure their debts while continuing to operate. The debtor proposes a plan to repay all or part of its debts over time, usually by modifying payment terms, interest rates, and other obligations. Creditors and the bankruptcy court must approve the reorganization plan. Chapter 11 is often used by larger businesses or those with complex debt structures.
- Chapter 13: This type of bankruptcy is typically used by individuals and sole proprietorships with regular income. It allows debtors to reorganize their debts and create a repayment plan that lasts three to five years. Like Chapter 11, the debtor’s proposed plan must be approved by creditors and the bankruptcy court.
What Are The Effects Of Commercial Bankruptcy?
Commercial bankruptcy can provide businesses with protection against certain actions by creditors. Once a business files for bankruptcy under any chapter, an “automatic stay” is typically put into effect. The automatic stay is a court order that temporarily halts most collection efforts and other legal actions against the debtor, including lawsuits, foreclosures, and repossessions.
The purpose of the automatic stay is to give the debtor breathing room to develop a plan to address their financial situation without the constant pressure from creditors.
It’s important to note, however, that the automatic stay does not stop all legal actions. Some exceptions to the automatic stay can include:
- Criminal proceedings: The automatic stay does not halt criminal prosecutions against the debtor or their business.
- Certain tax proceedings: The stay may not prevent some tax-related actions by government authorities, such as tax audits, deficiency notices, or tax liens.
- Domestic support obligations: The automatic stay does not apply to the collection of child support or alimony payments.
- Evictions: In some cases, the automatic stay may not prevent an eviction if the landlord has already obtained a judgment for possession before the bankruptcy filing or if the eviction is based on endangerment of property or the illegal use of controlled substances.
- Multiple bankruptcy filings: If the debtor has filed for bankruptcy multiple times within a certain time frame, the automatic stay may be limited in duration or may not apply at all.
Creditors can also request the bankruptcy court to lift the automatic stay under very specific circumstances, which your commercial bankruptcy attorney will discuss with you.
What Are The Long-Term Consequences Of Commercial Bankruptcy?
Commercial bankruptcy comes with several long-term consequences. Some of the most notable long-term consequences that commercial bankruptcy can engender are as follows:
- A bankruptcy will show up on your credit report.
- Obtaining a new business loan may be challenging due to the bankruptcy.
- Many of the business’ assets could be sold off, which would change the valuation and potential future prospects of your business.
- You may be forced to go through layoffs if the business’ finances are unable to support your current employees.
- Depending on the equity structure of your company, there is the potential for adverse effects from a funding standpoint with investors.
None of these consequences are desirable, as they affect you, the people who work for or with your business, as well as your ability to develop another business.
What Should You Do When Facing Commercial Bankruptcy In North Carolina?
No matter the circumstances that are underlying your commercial bankruptcy, in the state of North Carolina, there is one thing that you must do: have an experienced commercial bankruptcy litigation lawyer on your side.
Every commercial bankruptcy situation is unique and different. Working with the team at Wilson Ratledge can help you understand your options, and come up with a plan to give you the best short-term and long-term outcomes.
Our North Carolina Commercial Bankruptcy Lawyers Can Help
A commercial bankruptcy litigation lawyer can help you with every facet of commercial bankruptcy. Some of the most notable things a commercial bankruptcy litigation lawyer can assist you with are as follows:
- Determining whether or not commercial bankruptcy is the most appropriate option for your business.
- Going over the other options available to you outside of filing for commercial bankruptcy.
- Assessing which form of commercial bankruptcy you should consider and which one is right for you.
- Dealing with litigation that arises as a result of debt or filing for commercial bankruptcy.
- Reorganizing your business, and its assets, in accordance with current bankruptcy laws.
- Conducting the commercial bankruptcy process in a way that is efficient and effective.
Commercial bankruptcy is complex and difficult. The team at Wilson Ratledge can help you navigate the process. Contact us today to schedule a consultation!