Small Business Owner’s Guide to Bankruptcy in New York

December 28, 2023

As a small business owner in New York, when you face financial challenges, you lack a safety net. It’s just you against the world. 

Bankruptcy, often seen as a last resort, is a tool that could provide a lifeline for your business when you feel there’s nowhere else to turn.

Bankruptcy for small businesses isn’t just about closing doors. It can be a strategic step toward restructuring debts, protecting your assets, or even paving the way for a fresh start. In New York, you have specific options tailored to the unique challenges of running a business.

Below, the experienced New York bankruptcy attorneys at Jacoby & Jacoby will walk you through the bankruptcy process for small business owners in New York. But if you need help now, reach out to our firm before reading on.

​​Recognizing When Bankruptcy Is an Option

Recognizing the right time to consider bankruptcy is critical for the health of your small business. It’s about seeing the signs and acting proactively. Let’s talk about these signs.

First, if you’re consistently struggling to pay debts as they come due, it’s a red flag. Cash flow issues that aren’t just a one-time problem but a recurring nightmare are a sign. It’s when your outstanding debts seem to grow each month, despite your best efforts.

Second, consider your business’s financial health. Are your liabilities outweighing your assets? This imbalance can lead to a situation where bankruptcy could offer a path to rebalance.

Another crucial aspect is the future. Look ahead. Do you see viable prospects for your business? If market conditions, industry changes, or internal challenges paint a bleak future, it’s time to consider your options.

Evaluating financial health isn’t just about numbers. It’s about understanding the story they tell. Is your business in a temporary slump or facing a long-term crisis? This distinction is key in deciding whether bankruptcy is the right step.

Remember that considering bankruptcy is not about admitting defeat. It’s about taking a strategic step to protect your business’s future.

Types of Bankruptcy for Small Businesses in New York

Understanding the types of bankruptcy available is key to making the right choice for your business. In New York, you primarily have three options: Chapter 7, Chapter 11, and Chapter 13. Each serves a different purpose.

Chapter 7 Bankruptcy: Liquidation Process

If your business is facing insurmountable debts and continuing operations is no longer viable, Chapter 7 might be the route. 

Here, your business assets are liquidated to pay off creditors. It’s a process of closing down, but it can bring a sense of closure and relief from debts.

Chapter 11 Bankruptcy: Reorganization Plan

Chapter 11 is about reorganization. It’s suited for businesses that have a solid foundation but are overwhelmed by current financial obligations. 

In this process, you can renegotiate terms with creditors and restructure debts, while keeping your business operational. It’s a complex process but can be a lifeline for restructuring and revitalizing your business.

Chapter 13 Bankruptcy: Individual Debt Adjustment (for Sole Proprietors)

If you’re a sole proprietor, Chapter 13 could be a solid option. It allows you to reorganize your personal and business debts and pay them over time. 

It’s a plan for those who have a regular income and can commit to a payment plan while keeping their sole proprietor business running.

The Bankruptcy Process for Small Businesses

Navigating the bankruptcy process can seem daunting, but understanding the steps can demystify it. Let’s explore what’s involved.

Initial Steps: Consulting with a Bankruptcy Attorney

Your first step is consulting with a New York bankruptcy attorney. This isn’t just about filling forms; it’s about strategic planning. A knowledgeable attorney can:

  • Assess your situation.
  • Explain the implications of each bankruptcy type.
  • Guide you in making an informed decision.

This initial consultation is crucial. It sets the tone for your journey through bankruptcy and beyond.

Filing for Bankruptcy: Required Documents and Procedures

Once you’ve decided to file, there’s paperwork to handle. Each bankruptcy type has its requirements, but generally, you’ll need to provide:

  • Detailed financial statements.
  • A list of assets and liabilities.
  • Proof of income and expenses.
  • Tax returns and other financial documents.

The process involves:

  • Preparing and filing the petition. This includes all your financial details and the bankruptcy type you’re filing for.
  • Automatic stay. Upon filing, an automatic stay goes into effect, halting most collection activities against you and your business.
  • Meeting of creditors. You’ll attend a meeting where creditors can ask questions about your financial situation and the proposed plan.
  • The bankruptcy plan. For Chapter 11 and 13, you’ll propose a repayment plan. Chapter 7 involves liquidation under the trustee’s supervision.
  • Discharge. Depending on the chapter, your debts may be discharged after completing the plan or liquidation.

Each step requires careful consideration and precision. With the right guidance, you can navigate this process with clarity and confidence, paving the way for a fresh start for your small business.

Financial and Legal Considerations in Bankruptcy

As a small business owner, understanding the financial and legal aspects of bankruptcy is key to making informed decisions. Here’s what you need to know:

Asset Management and Debt Discharge

  • Asset management. Your assets are central in bankruptcy. In Chapter 7, non-exempt assets are liquidated. But, in Chapters 11 and 13, you may keep them while repaying debts.
  • Debt discharge. Most unsecured debts can be discharged, offering relief. However, certain debts like taxes or student loans might not be.

Every case varies, so it’s crucial to know which assets are at stake and what debts can be cleared. An attorney can walk you through the nuances specific to your case.

Impact on Credit and Future Business Operations

  • Credit score. Bankruptcy will impact your credit score. This could affect future loan eligibility or terms.
  • Operations. In Chapters 11 and 13, you can keep operating. Chapter 7 might mean closing your business.

Help for NY Small Business Owners Considering Bankruptcy

Bankruptcy is a significant step for any small business owner. It’s a path filled with important decisions and legal nuances, especially in New York.

This journey isn’t easy, but it’s sometimes necessary. It’s about making a strategic choice to protect and potentially rejuvenate your business.

As New York bankruptcy attorneys, we can’t stress enough the importance of seeking professional advice.Navigating bankruptcy laws requires expertise. It’s about understanding the law and applying it to your unique situation.

A qualified attorney — like those with decades of experience at Jacoby & Jacoby — can help you weigh your options, handle legal proceedings, and guide you toward the best possible outcome.

You’re not alone in this. We’re here to help. Schedule a free consultation with a New York bankruptcy lawyer by calling (888) 452-2629 or contacting us online today.

Why Choose Jacoby & Jacoby?

Experienced and Qualified Representation

When you work with a New York bankruptcy lawyer at Jacoby & Jacoby, you have the benefit of our years of experience and our extensive resources, all at your disposal as you face these trying times. The stress and emotions associated with mounting debt may leave you feeling hopeless and lost. Thankfully, with the help of a lawyer at our firm, you can begin to take control of your finances and experience much needed relief.

By discussing your situation with an attorney at our firm, you can decide whether bankruptcy is right for you. You can learn what your options are. When you work with an experienced attorney at Jacoby & Jacoby, you will have the support and legal counsel of a professional who will know what to do to help. Finally, you can experience relief from creditors. You can stop worrying about losing your possessions or your home.

Contact our firm today, and learn more about the many ways that we can come to your aid. Call Jacoby & Jacoby at (888)452-2629.

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