When businesses begin to lose revenue during a tough economy, paying creditors can become a troublesome task.
Looking at the example of a Kansas health and wellness company, which recently filed for Chapter 7 bankruptcy, our readers can get an idea of how filing for bankruptcy can offer business owners solutions for dealing with aggressive creditors.
The Kansas business recently stated that it had between $1 million and $10 million in liabilities, but only $100,000 to $500,000 in assets. Founded in 1995, the business provided wellness services and behavioral coaching clinics to the Topeka area. In 2014, the company listed $2.78 million in earnings. However, when the company filed for Chapter 7 bankruptcy, the earnings were listed at $114,487.
At the time of the bankruptcy filing, the company had multiple collection lawsuits against it and owed the IRS $410,406. In addition to creditor lawsuits and IRS problems, the company has all of its checking and payroll accounts overdrawn and estimates that it has over 100 creditors.
What Happens in a Chapter 7 Bankruptcy?
Chapter 7 bankruptcies are commonly referred to as “liquidation bankruptcies”. This means that a trustee can be appointed to help a company list and sell assets through inventory auctions or property sales. The company we used as an example has over 100 creditors, meaning more lawsuits and collection activity is likely on the way. By filing for Chapter 7 bankruptcy, the health and wellness company would have the option of liquidating its remaining assets and using a trustee to help decide which creditors to pay.
Depending on the situation and what assets a company has, filing for either Chapter 7 or Chapter 11 bankruptcy could offer solutions that include stopping creditor activity, protection from further lawsuits, and the appointment of a trustee to oversee the liquidation or alter repayment plans. Contacting an attorney can help businesses figure out how filing for bankruptcy would best suit their needs.
The Sader Law Firm – Kansas City Bankruptcy Attorneys