I get frequent inquiries from Los Angeles Space small enterprise homeowners eager to file chapter “on” their enterprise.

“I must file chapter as a result of my enterprise is failing”, they inform me.

Nonetheless, it’s not often essential to file chapter for a company/llc/llp enterprise that isn’t making an attempt to remain in enterprise.

When To File Chapter For Your Company LLC LLP

Is your small enterprise owned beneath a company**, or LLC, or LLP, or is it merely a sole proprietorship of yours (e.g. John Doe dba Doe’s Storage)?

If the enterprise is not a separate authorized entity, akin to a sole proprietorship, then it’s essential to look at the private/particular person chapter choices of the enterprise proprietor(s) as a result of there is no such thing as a separate enterprise entity.

Who Owes The Money owed On Your Enterprise?

Let’s say you’ve tried all the things and you’ve got determined to shut the doorways of your small enterprise (assuming your online business location has doorways).  You could have stopped or will cease operations and wish to stroll away.

If your online business is a company, LLC, or LLP, then its collectors have recourse towards the belongings of the enterprise.

And, in the event you signed a private assure on any of the enterprise money owed, then additionally they have recourse towards you (the proprietor) individually.

Furthermore, some money owed may additionally turn into your private duty even within the absence of a private assure.  This contains issues just like the belief fund portion of unpaid payroll taxes and gross sales tax obligations.

Even when a company did get a discharge of money owed in chapter, that may not have an effect on the private legal responsibility on any private ensures or different of the above-mentioned obligations.

That’s the reason in most of those circumstances, it’s a private chapter case that’s wanted; not a company “enterprise chapter”.

When To File Chapter 7 For Companies **

Companies don’t obtain a discharge of money owed in Chapter 7.

For some purpose, this idea could be very tough for a lot of to know.

One purpose that no discharge is entered for companies in Chapter 7 is that it might be fully pointless.

If a company is now not working and going out of enterprise, what profit would there be to discharging its money owed?

If no extra enterprise is to be carried out, servicing present money owed is a non-issue.

Nonetheless, there are occasions when a Chapter 7 may be useful in these circumstances, when the small enterprise has plenty of belongings.

This happens the place a brand new entity has been shaped to run primarily the identical enterprise, and the brand new homeowners want some belongings from the “outdated” company to run the brand new one (for instance, equipment, or software program, the model title, or no matter).

In that case, a Chapter 7 submitting helps defend the homeowners from legal responsibility because the Chapter 7 Trustee can promote the belongings to the brand new enterprise (after a traditional bidding course of).  Then the homeowners of the brand new enterprise can’t be accused getting the belongings for lower than truthful market worth and it helps take away any successor legal responsibility points.

When To File Chapter 11 For Companies in Los Angeles

Chapter 11 is filed when the small enterprise company needs to remain in enterprise and reorganize.

It will also be used to liquidate belongings and management the sale greater than could be doable in a Chapter 7.

Chapter 11 to remain in enterprise requires proposing some sort of reimbursement plan.

Many guidelines have to be adopted to get a Plan authorized, together with acquiring a sure variety of votes from collectors, which may be tough.

The brand new SubChapter V Chapter 11 allows a fee plan based mostly on projected disposable earnings, sometimes over a 5 yr interval, and may be achieved even with out collectors with the ability to vote.

To see extra on the Chapter 11 choices, go to my Los Angeles Chapter 11 chapter web page.

When To File Chapter if Your Enterprise is a Sole Proprietorship / DBA

In case your small enterprise is NOT a company** then there is no such thing as a separateness between your online business and your self individually. You might be one and the identical.

So, on this case, submitting a chapter “on your online business” means submitting a private chapter case.

Submitting a private chapter could be needed in case you have private ensures or different legal responsibility on money owed from a company** which you might be unable to pay.

Private chapter may be filed beneath Chapter 7, 11, or 13, relying on the information and circumstances of your case (quantity and kind of debt, worth of belongings, earnings and bills, and so on.).

A session with a certified and skilled chapter legal professional is critical to find out whether or not it’s essential file a chapter and, in that case, which Chapter could be finest.

**Once I consult with firms I’m together with, for the sake of this text, any non-individual entities akin to LLCs, LLPs, S-Corps, and C-Corps.