Former retail giant Sears filed for chapter 11 bankruptcy on Monday of this week. They have a plan in place for how to revive the company, that includes closing at least 142 stores, and are seeking creditors to keep them afloat instead of having to liquidate the company. The law offices of Oliver & Cheek are well versed in the ins and outs of business law, and are here to help your large or small business through any situations. Today we are digging into different versions of bankruptcy and how Sears’ bankruptcy filing choice can help you learn which is best for your business when facing a financial struggle.
Filing for chapter 11 bankruptcy is used by large businesses to reorganize debts and continue operations. Corporations, partnerships, and LLCs are not allowed to file for relief under Chapter 13, thus Chapter 11 would be the only option for these entities if reorganization is needed. If a company files for relief under Chapter 7 it must end operations upon the filing of the case. In North Carolina the bankruptcy administrator supervises the case. A Chapter 11 plan is submitted to the court detailing the proposed treatment of secured and unsecured claims and a judge then approves or confirms the plan. The plan—which details creditors to be paid, how much they are paid, and how long the plan lasts—is then implemented. Usually plans for small businesses last three to five years. Sears chose chapter 11 because it allowed them the flexibility to reorganize, stay open through the holidays, and then continue in their reorganization strategy into the new year. For Sears and many other businesses this is a great choice, and can breathe new life into the company, eventually allowing it to completely revive itself. Where Ch 7 is final Ch 11 provides needed flexibility in keeping a business alive.
Two other forms of bankruptcy are Ch 12 and Ch 13. Both are inherently different in their strategies as well.
Ch 12 is used by farmers or commercial fishermen to reorganize their debts and continue operating their farms or fishing operations. The advantage of Chapter 12 is that the reorganization plan will allow payments to be made seasonally, when the farmer or fisherman earns his money. The limitation of only being able to restructure loans in a five-year period in Chapter 13 cases is not a limitation in Chapter 11 or Chapter 12 cases. A corporation, partnership, or LLC, along with individuals, are eligible for relief under Chapter 12 as family farmers or family fishermen.
Ch 13 is a “reorganization” bankruptcy that allows a person to repay some or all debts. The amount paid to creditors is based on what you want to keep, what you earn, and how much non-exempt property you have. Those who choose this option are usually behind on their house and car payments, but desire to catch up on those payments to keep the property. This option does not necessarily mean all creditors will be paid in full—it is a way to repay taxes to the IRS or North Carolina Department of Revenue as there are no penalties when you pay through a Chapter 13 plan.
All of us here at the law offices of Oliver & Cheek understand that no one option will be entirely perfect for your business. For many filing for bankruptcy is the last resort, we are here to help guide you through the process, helping you pick the best strategy and ultimately trying to save your business. For more information feel free to contact us today!
At Oliver & Cheek business law is one of our specialties and we are here to help you through all of your business needs, organization and beyond. For more information or to schedule a consultation, please contact Oliver & Cheek, PLLC by calling (252) 633-1930 or visiting www.olivercheek.com.
