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.
Liquidation through Chapter 7
In the event that a nonprofit’s leadership determines that the best course of action is to cease operations, liquidation under Chapter 7 of the bankruptcy code is likely the best course of action. In a Chapter 7 bankruptcy, an organization’s assets are liquidated for the purposes of paying back creditors. It’s important to consider that functionally, dissolution may achieve the same result as filing for Chapter 7. For this reason, any nonprofit considering filing Chapter 7 should consult with a lawyer.
Reorganization through Chapter 11
If, on the other hand, you determine that you would like to continue operating the nonprofit, Chapter 11 may be an option to consider. Chapter 11 involves reorganizing the nonprofits’ debts and placing the organization on a payment plan. While the nonprofit is “in” Chapter 11, it is protected from collection actions by creditors, including repossession, lawsuits, communications, and foreclosures. In addition, the nonprofit can continue to seek financing, pay employees, and perform other functions, provided that it complies with the terms of its Chapter 11 plan.
Nonprofits bankruptcy is a complicated matter.
Nonprofits can find themselves in financial distress like any other organization. Fortunately, there may be options through the United States Bankruptcy Code that allow an organization to continue to serve its community while reorganizing its debts. It is important to note, however, that nonprofit bankruptcy is a complicated matter, and it is highly advisable to discuss all of your options with an experienced bankruptcy attorney before making any decisions that could affect the nonprofit. In addition, if you choose to move forward with bankruptcy for your nonprofit, you should do so with the assistance of a lawyer. Some of the ways that a lawyer can help include:
- Determine which type of bankruptcy is right for you
- Draft and submit your bankruptcy petition and support materials
- Represent your organization in court and with creditors
- Handle any issues that may arise during your bankruptcy case
Call California Bankruptcy Center Today to Learn More
If you are running a nonprofit and have questions about bankruptcy, you should contact an attorney as soon as possible. At the California Bankruptcy Center, we are dedicated to helping individuals and businesses find financial relief through the bankruptcy process and always ensure that our clients obtain the best outcome available under the law. To schedule a consultation with a member of our team, call our office today at (408) 919-0125 or Request for a consultation online.