Filing a Kentucky small business bankruptcy can be done as a Chapter 7, 13 or 11. You should plan the bankruptcy with your attorney so that the owners of the business or corporate officers avoid becoming personally liable. Whether or not they remain liable will often depend on how the attorney files a Kentucky small business bankruptcy.
Should the owners file bankruptcy personally, or file should the small business file bankruptcy? Often the owner of a small business can personally file bankruptcy as a Chapter 7 or Chapter 13 which will take care of his personal liability and allow the business to continue operations. (These are the powerpoints for how to file a Chapter 7 or 13) But simply because the owner has filed bankruptcy does not mean that creditors will not continue to harass the business which is separate and has not filed for protection.
If a small business files Chapter 7 it normally means closing. But if the owner files a Chapter 7 or Chapter 13 bankruptcy the corporation or small business can continue to operate. Filing a Chapter 11 is expensive with attorney fees in the tens of thousands of dollars. However many business owners can often run a company in a Chapter 13 without these costs and the owner can keep control of the business while he restructures the small business. If a person has a very large debt load with personal liability over $360,475 of unsecured debt and $1,081,400 the bankruptcy must be filed as a Chapter 11 or Chapter 7 and cannot be filed as a Chapter 13.
In a Chapter 11 the judge will at some point be asked to shut the company down and sell the assets if it continues to lose money. Viable businesses don’t continue to lose money. If the business is to continue there must be a positive cash flow. A well-established firm that has experienced a one-time shock is likely to succeed. But a new businesses and those that can’t meet competition are not. To make the decision judges will use different ways to decide if the business needs to be shut down. The 13 O’Clock Rule ( this person has been in my court too many times and won’t follow the rules), Cash-Flow Rule, Three Strikes (Sometimes only two times in my court) and You’re Out, Meeting Milestone (If you can’t get past the first meeting with creditors your out), and the Company You Keep. Most businesses that can properly set up their Chapter 13 plan within 120 days and have a positive cash flow will survive. Others don’t. But the decision to shut down should not be made until we have enough facts. Economists call this decision to delay until you have the facts a “real option”. The “real options” idea incorporates delaying until we have more information a part of net present value calculations
Generally you want to keep a corporation operating if it has a positive cash flow. You want to close a company if it is draining cash flow and assets to continue operating. If the company has assets the corporation may want to sell these assets before filing the bankruptcy. This can be very important in allowing a company to pay trust taxes or employees before closing. The failure to pay trust taxes often means that the owner remains liable for taxes that can’t be bankrupted by him personally. Closing a small business also has to be done properly to avoid problems with fraudulent transfers or preferential transfers in bankruptcy.
These issues need to be planned along with your attorney to make sure that you plan How to file a Kentucky small business bankruptcy.
