Nonprofits usually operate on lean budgets, striving to direct most of their funds to directly helping the communities in which they are located. That said, some nonprofits do borrow money in order to operate more efficiently and better serve the community. There is always a risk associated with taking out debt, and nonprofits are susceptible to financial problems just like any other organization. In some cases, a nonprofit may seek financial relief by restructuring its debts through bankruptcy.

Nonprofit directors considering bankruptcy should not take any action without first discussing their options with an experienced bankruptcy lawyer. Any action taken could result in significant and unforeseen circumstances that could irrevocably impact the organization’s ability to operate and serve the needs of the community. Call our office today to schedule a consultation with a bankruptcy lawyer.

If your business is a separate entity such as a partnership, corporation, or LLC, you may still be able to reorganize your debts through a Chapter 11 bankruptcy. Chapter 11 is most often used by businesses like LLCs, corporations, or partnerships. In some cases, sole proprietors can file for bankruptcy if they are ineligible to file for Chapter 13 because of their debt level.

In Chapter 11, a business continues to operate while under the supervision of a court-appointed trustee and files a reorganization plan that outlines how it is going to deal with creditors. While the company is in Chapter 11, it can reform contracts, obtain financing, collect assets, and repay debts. Due to the complicated nature of Chapter 11 bankruptcy, it's critical that anyone considering it speak with an experienced lawyer prior to filing.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is only an option for individuals and not businesses such as partnerships, corporations, or LLCs. Just like a Chapter 7 bankruptcy, if you are a sole proprietor, you have the option to file a personal Chapter 13 bankruptcy that will reorganize your personal and business debts. A skilled California small business bankruptcy lawyer can help you understand the similarities and differences between these two different types of bankruptcy options.

Small Business Owner Benefits of Chapter 13 Bankruptcy

Unlike Chapter 7 bankruptcy, in Chapter 13, you keep your assets. Instead of paying your creditors with assets sold by the trustee, you pay them back through a payment plan. Sometimes, you only pay back a portion of the debts. A sole proprietor with significant business assets will have unexempt assets sold by the Chapter 7 trustee. In Chapter 13, the debts are reorganized, allowing you to protect your business assets and continue running your business.

Only sole proprietors who file for bankruptcy will receive a discharge of their debts. If your small family business is a different type, it will not receive a discharge of debts. If you signed a personal guarantee or are otherwise responsible for the business debt, you are still under a legal obligation to pay the debt unless you decide to file a personal Chapter 7 bankruptcy.

In a business Chapter 7, exemptions do not apply. Instead, the trustee sells every business asset and uses the proceeds to pay creditors, and the company goes out of business. Many business owners choose to sell their own business assets since they generally will receive more money for them than a bankruptcy trustee. This allows them to pay more of their business debts, ensuring they will pay less of the business debt with their personal funds.

Chapter 7 Bankruptcy                                       

United States Bankruptcy law allows both individuals and businesses to file Chapter 7 bankruptcy. Small business owners can file Chapter 7 bankruptcy on behalf of themselves or their business. The only exception is if you are a sole proprietor, as then your business and personal debts are taken care of in one single Chapter 7 bankruptcy case.

If you file Chapter 7 bankruptcy on behalf of your small business, it will not eliminate your business's debts. For this reason, many small business owners prefer to file an individual bankruptcy so that their personal legal obligations to pay the business debt are gone.

In recent months, many small businesses have fallen on hard times as a result of the global coronavirus pandemic. Even businesses that were growing and thriving when the calendars switched over to 2020 now find themselves wondering how or if they will survive. Some small businesses have received financial help from the government in the form of the Paycheck Protection Program (PPP) or an Economic Injury Disaster Loan (EIDL). However, small businesses that want to stay afloat have a lot of catching up to do, even if they were able to take advantage of one or both of these programs.

If your small family business can relate to any of this, you might find it beneficial to speak to a small business bankruptcy attorney in California. You might be relieved that you have options that can reduce your debt, manage your monthly payments, and allow you to continue operating. Your options will depend on the structure of your business, the amount of debt and assets you have, and if you desire to continue the business.