Corporate Bankruptcy and LLC Bankruptcy

Normally, a Chapter 11 Bankruptcy entails a filing of a corporate bankruptcy, an llc bankruptcy, or a small business bankruptcy.  Generally, a corporate bankruptcy differs from a personal bankruptcy in that the income by the business filing bankruptcy exceeds a certain threshold.  Although there are alternatives to business bankruptcy, many times there is no choice but to file.

What are the advantages of a Chapter 11 Bankruptcy or otherwise known as a Business Bankruptcy

Advantages of a Chapter 11 Business Bankruptcy:

In some jurisdictions, a claim of negligent hiring, supervision, or retention may not be cognizable in certain situations, requiring a plaintiff to assert an alternative cause of action. For example, Kansas law does not recognize a cause of action for negligent supervision, hiring, and training in the context of sexual harassment.

To establish a prima facie case in an action based on the negligent hiring, supervision, or retention of an employee for damages caused by an employee’s tortious act, the plaintiff must show that:

1. the employer had a duty to protect the plaintiff from harm resulting from its employment of the tortfeasor
2. the employer breached that duty and
3. the employer’s breach of duty was a proximate cause of the harm suffered by the plaintiff

Contact an experienced business lawyer to help guide you through your questions concerning employee liability.

The LLCs benefits

As mentioned above, there are a number of benefits in choosing an LLC as your business entity. First and foremost, the members of a limited liability company are, for the most part, shielded from personal liability for actions on the part of the L.L.C.  This is because the LLC is an entity.  Imagine for a moment a table, surrounded by two two chairs.  In one chair is yourself, and the other chair is empty at the moment.   If you form an LLC entity, that LLC entity would be sitting in the other chair, as it is a completely separate business entity.  If you dissolve the LLC, it would cease to exist.

Arizona law states that “no member, manager, employee, officer or agent of a limited liability company is liable solely by reason of being a member, manager, employee, officer or agent, for the debts, obligations and liabilities of the limited liability company whether arising out of contract or tort, under a judgment, decree or order of a court otherwise. ” A.R.S. 29-651

The mere fact that a person is a member of a corporation does not completely avail them of avoiding future liability when two specific exceptions apply: “piercing the corporate veil” or “alter ego” theory of liability. In these scenarios the LLC will sometimes be disregarded if it is necessary to prevent fraud or to prevent a member from avoiding their existing personal obligations. In addition, members can be held personally liable under the veil theory if they fail to provide adequate capitalization at the time of formation.

The second benefit of the LLC is the flexibility in the management. Members of an LLC can participate directly in the management of the business, or can elect a manager or managers to handle the affairs of the LLC. The LLC can pay compensation to employees who are not members and deduct this compensation as a business expense. If compensation is paid to a member-employee of an LLC with more than one member, the compensation is deductible so long as it is determined without regard to the income of the LLC.

You can form a corporation or an LLC with an attorney for reasonable costs that will save you money and problems in the long run. A properly run corporation or LLC protects the personal assets of owners from debts or court judgments against the company. If your business fails or goes bankrupt, for example, your creditors cannot force you to use your home, car, and personal financial accounts to settle your debts if the business is a limited liability company.

Small business owners have realized the benefits of choosing an LLC, and form it early on.  Many, however, do not understand the rights and responsibilities that come with choosing an LLC.  The laws in Arizona are subject to change, so it’s important to check on them when you are ready to incorporate or form your LLC.

How do you form or setup a Limited Liability Company in Arizona?

If you have chosen an LLC as your business entity, the company must be setup properly.  You must file Articles of Organization for the LLC with the Arizona Corporation Commission. Most of the time you can have your Articles of Organization for your LLC formed within three to five weeks, however the formation of the LLC Articles of Organization can be expedited for an additional fee.  Once approved, a Notice of Publication must be filed in accordance with the Corporation Commissions guidelines.  Although it seems simple, there is a lot that can go wrong if not done properly.

Although you can form an LLC yourself, it would be wise to hire an attorney experienced in business formation to do the filing for you. Choosing to have a professional file your LLC can save you time and money by doing it right the first time. An experienced attorney will know how to do it right, and how to satisfy each of the requirements. They will be able to check for any conflicts in the name of the company, as well as advise you on the potential benefits and pitfalls of filing as an LLC. Also, the law firm can serve as a statutory agent for service of process purposes.

In today’s volatile market, it is important to build your business on a firm foundation.Forming your own business can be a perfect solution for many, and even many of today’s major corporations started off in a garage or backyard. The point is, when you form an LLC you never know where it will go, so you want someone there to point you in the right direction all the way through your companies formation.

Foreclosure seeks court authority to foreclose the  lien on the owner’s property. This allows the property to be sold at Sheriff’s sale.  There may be liens superior or junior to your lien, and you should consult with an attorney when looking into this. The lien will be satisfied through a Sheriff’s sale, if there is enough equity in the owner’s property.   Please be aware that there are nuances to foreclosure, including the ability of the first mortgage to foreclose in 90 days by trustee’s sale, a fairly short period of time.

The other collection procedure seeks a judgment against the owner personally.  This means that the judgment appears on the owner’s credit report and the owner must personally pay the required amount to remove.  It also permits you, with a judgment, to garnish wages, garnish bank accounts if they can be located, and require the judgment debtor to appear for a deposition concerning assets.  This track, through Justice Court, is generally less expensive than foreclosure.  With both foreclosure and personal judgments, we can enter into payment agreements at any time with an debt if it is in the best interests of the you.  The goal is to get paid.

Across the country, Courts are seeing more and more debt-collection cases flood the courtrooms. Most of the cases involve credit card collections, foreclosures, or evictions. This proverbial debt collection crisis is the result of the economic crash that occurred in 2008, which caused housing values to plummet and major lenders to shut their doors. In turn, this debt collection crisis has translated into more and more people filing for bankruptcy which includes both Chapter 7 bankruptcy and Chapter 11 bankruptcy. As a result, the way debt collection agencies and debt collection lawyerspractice has changed significantly. This article will address the issues that face the creditor in a bankruptcy and its impact on debt collection.

What happens if the debtor files for bankruptcy?

One of the most powerful features, and consequently one of the main reasons people pursue a bankruptcy to discharge their debt it, is that bankruptcy stops creditors from pursuing you for debt collection. Once filed, most collection activity must cease and go through the bankruptcy court. It goes without saying then that once a debtor files for bankruptcy you should consult with an experienced attorney to determine whether the debtor is eligible for bankruptcy relief. Your bankruptcy attorney should be familiar with the rules regarding Chapter 7 bankruptcy and Chapter 13 bankruptcy, or even Chapter 11 bankruptcy if the bankruptcy debtor wants to remain in bankruptcy because the debtors’ income exceeds the means test.

After the debtor files for bankruptcy an automatic stay goes into effect. The automatic stay prohibits bankruptcy creditors from taking any action to collect on the debt the bankruptcy debtor owes to the creditor. Again, there are a few exceptions to what kind of debt is discharged in a Chapter 7 bankruptcy and Chapter 13 bankruptcy, and the creditor should consult with an experienced bankruptcy attorney to determine whether debt collection can proceed. Once the bankruptcy creditor receive notice that the debtor has filed for bankruptcy, a lawyer experienced with debt collection and personal bankruptcy law will analyze the case and determine whether you can object to the debtors bankruptcy and file a motion to lift the automatic stay.

Whether a bankruptcy automatic stay can be put in place by the bankruptcy creditor depends on the type of bankruptcy that the bankruptcy debtor has filed. Since a Chapter 13 Bankruptcy is more favorable to a bankruptcy creditor, most debtors attempt to pursue filing a bankruptcy through Chapter 7. If this happens, all is not lost, as in certain instances a case initially filed under Chapter 7 can be converted to a Chapter 13 or dismissed.

In a Chapter 7 bankruptcy, the debtor surrenders all nonexempt property to an appointed bankruptcy court trustee. The Chapter 7 trustee then liquidates the property through sales, and the proceeds of the bankruptcy sale are distributed to priority creditors. After the priority creditors are paid, the remaining balance is divided amongst any unsecured creditors. In most Chapter 7 bankruptcy cases, assets rarely trickle all the way down into the hands of the unsecured creditors. Thus, most unsecured creditors would rather see a debtor pursue a Chapter 13 bankruptcy rather than file a Chapter 7 bankruptcy.

In Arizona, an individual is not eligible to file a Chapter 7 bankruptcy unless:

1. Their income for the six months prior to bankruptcy filing is less

than the median income for the same size household in Arizona, or

2. Their monthly “disposable income” (the amount of income left

over per month after subtracting living expenses per modified IRS

guidelines) is less than a minimal allowed amount (income is based on an

average of the six months prior to filing);

3. Their debts are not primarily “consumer debts.”

These rules do have exceptions, and determining whether a person is eligible for Chapter 7 bankruptcy requires a thorough investigation into their financial information.

Chapter 13 Bankruptcy and whether debt collection can proceed

If the debtor is unable to file a Chapter 7 bankruptcy, then they will usually find themselves in bankruptcy court under Chapter 13 of the bankruptcy code. Under Chapter 13, the bankruptcy debtor is seeking to reduce their debt, and negotiate a debt adjustment. The Chapter 13 bankruptcy differs from the Chapter 7 in a number of ways. Specifically, in a Chapter 13 bankruptcy the bankruptcy debtor must turn over all of their disposable income to the bankruptcy trustee for a period of three years, must disperse any increases in disposable income to those creditors, and must seek the bankruptcy court’s permission to engage in significant activities outside the ordinary course of business. Thus, most attempt to file under Chapter 7 of the bankruptcy code rather than Chapter 7.

In cases where the debtor has filed under Chapter 13, or it has been converted to a Chapter 13 from a Chapter 7 bankruptcy, an debt collection attorney has a number of options at their disposal when a debtor is seeking relief under the bankruptcy code. After filing a notice of appearance, a debt collection attorney should review the amount of debt that the debtor owes the bankruptcy creditor. The attorney should also check to see how many other creditors have a claim. Being proactive at this point is what can make or break your chances of recovering a substantial percentage of the debtor’s obligations.

As mentioned above, a Chapter 13 bankruptcy is more favorable to the creditor. Once filed, the debtor will propose a Chapter 13 plan of repayment, which can provide for full, partial, or no planned repayment of unsecured claims. Interestingly enough, a substantial portion of the payments promised to secured creditors under Chapter 13 plans are never made. Thus, it is important that the creditor and its debt collection attorney be familiar with the guidelines of Chapter 13 and Chapter 7 bankruptcies since a single question can turn a Chapter 13 into a Chapter 7 Bankruptcy. In doing so, the experienced debt collection attorney could save their clients thousands of dollars that would otherwise not be accessible in a Chapter 7 bankruptcy.

Increasing the chances of successful debt collection

In today’s economy, it is a race against the clock for creditors. With the passage of time comes the chance that the economic, psychological, and legal factors will strain a debtor to their limit and force them to file bankruptcy. A vast majority of debtors default on their obligations because they have an inability to pay. It is vital to your business to ensure that your collections procedures are efficient, and being handled by an experienced debt collection attorney.

For the purposes of successful debt collection, it is helpful for the creditor remember that by being proactive they may be able to obtain payment, whereas the same action at a later time can result in nothing. Therefore, it is vitally important to seek the advice of an experienced debt collection attorney that is versed in both debt collection law and in bankruptcy law.