Worried business owners calculating finances

When Should a Business Consider Bankruptcy? 

Pytte Law Aug. 28, 2023

In Georgia, businesses that are facing financial difficulties can achieve financial relief and stability through bankruptcy. Taking the time to understand the different options of bankruptcy that are available to you, as well as the benefits, drawbacks, and resulting implications for your company, is imperative to make informed decisions about your business bankruptcy. 

At Pytte Law, I can direct you in legal matters surrounding business bankruptcy. As a seasoned Georgia bankruptcy attorney, I can examine your situation, explore your possible bankruptcy options, or consider other alternatives to help your business achieve financial stability. My firm proudly serves clients across Savannah, Statesboro, Hinesville, Richmond Hill, McIntosh County, Effingham County, and Long County, Georgia. 

When to Consider Bankruptcy: Signs of Financial Distress

Bankruptcy is available to businesses, including partnerships, sole proprietorships, LLCs, and corporations, that are overwhelmed with debts or facing financial hardship. Here are some signs of financial distress that can make you consider filing for business bankruptcy: 

  • Declining revenues and profits. 

  • Low capital balance or cash. 

  • Increasing liabilities and debts. 

  • Inability to meet financial obligations. 

  • Defaulting on bills. 

  • Inability to meet debt obligations, including lease payments and loans. 

  • Legal actions and creditor pressures. 

  • Excessive trading losses. 

  • Falling margins. 

  • Difficulty meeting payroll. 

  • Negative business environment. 

  • High-interest payments. 

  • Possibility of breaching vital debt covenants. 

If you're concerned about the financial health of your company, you need to reach out to an experienced business bankruptcy lawyer immediately. Your attorney can inform you about your different bankruptcy options and help you make informed decisions. 

Understanding Your Options

The most common options when filing for bankruptcy include Chapter 7, Chapter 11, and Chapter 13 for businesses and entrepreneurs in Georgia. 

Chapter 7 Bankruptcy 

Chapter 7 bankruptcy can help business owners facing financial instability to eliminate most of their general unsecured debts. Essentially, a court-appointed trustee will oversee your Chapter 7 case, gather and sell your non-exempt assets, and pay some or all of your debts using the net proceeds. The remaining debts will be discharged at the end of your case. 

Chapter 11 Bankruptcy 

Chapter 11 bankruptcy provides businesses with sufficient time to reorganize their affairs, debts, and assets while the business continues to operate. This often requires proposing a feasible reorganization plan to the creditor. The reorganization plan will outline how the business debtor plans to fulfill their debt obligations using potential revenue while keeping the business afloat. Though, Chapter 11 is only available to partnerships, corporations, and LLCs. 

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy is available to indebted business owners who earn a reasonable income. This requires a feasible repayment plan structured between three and five years to the creditor to settle unpaid debts using their future income. If you are able to satisfy your debt repayment using your disposable income without defaulting, you can retain all your business assets in Chapter 13. 

Alternatives to Bankruptcy

Here are some bankruptcy alternatives for business owners, entrepreneurs, and companies: 

  • Assignment for Benefit of Creditors (ABC) 

  • Operational restructuring 

  • Receivership 

  • UCC Article 9 Sale 

  • Out-of-court workout 

A seasoned lawyer can tell you about the benefits and drawbacks of each non-bankruptcy option and determine the right choice for you. 

Mistakes to Avoid

Here are some mistakes to avoid when filing for business bankruptcy: 

  • Hiding or withholding information about business assets. 

  • Selling or transferring business assets. 

  • Providing inaccurate information on your applications. 

  • Borrowing money, you can't repay. 

  • Making preference payments. 

  • Running up credit card debt. 

  • Not hiring a business bankruptcy attorney. 

A trusted attorney can direct you through every phase of your bankruptcy filing and court proceedings and improve your chances of a favorable outcome. 

Find Your Best Path Forward

In 2022, according to statistics from the American Bankruptcy Institute in Georgia, there were 506 total business bankruptcy filings. These businesses didn't go through alone, and neither should you. At Pytte Law, I'm dedicated to guiding business owners and entrepreneurs through the complex procedures involved in business bankruptcy. 

As your attorney, I can work to understand your financial situation and determine the right bankruptcy chapter or non-bankruptcy option for your business. In addition, I will guide you through the legal procedures involved, strategize a solid plan to settle your debts, and put your business on the right path toward financial stability. 

Contact me at John E. Pytte | Your Georgia Debt Relief Specialist today to schedule an initial consultation with a dedicated business bankruptcy lawyer. My firm proudly serves clients across Savannah, Statesboro, Hinesville, Richmond Hill, McIntosh County, Effingham County, and Long County, Georgia.