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Understanding Corporate Bankruptcy

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Learn about corporate bankruptcy and the options open to business considering filing for bankruptcy. Learn about chapter 7 vs chapter 11 and the best path for your financial recovery.

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Understanding Corporate Bankruptcy

  1. 1. THE BUSINESS OF CORPORATE BANKRUPTCY A LOOK AT THE BASICS OF BANKRUPTCY FOR BUSINESS, INCLUDING RECENT TRENDS WWW.BUNCHANDBROCKLAW.COM
  2. 2. CORPORATE BANKRUPTCY OVERVIEW No business opens with the intention of going bankrupt. However, due to debt, revenue challenges, a shaky economic climate, or other unforeseen circumstances, many owners find that making the tough decision to file for bankruptcy might actually be the wisest course of action going forward. On an average business day in 2015, there were 120 corporate bankruptcy filings, some of which were businesses who were closing up shop, while others were hoping to keep their doors open and protect their interests. There are two types of bankruptcy that businesses choose to file, Chapter 7 and Chapter 11.
  3. 3. CHAPTER 7 BANKRUPTCY  Chapter 7 Bankruptcy, which can be filed by either businesses or individuals, is known as a liquidation bankruptcy.  In Chapter 7, a portion of your property may be sold to pay down your debt.  Following the sale of your property, most or all of your unsecured debts will be discharged.  This is often the preferred choice of bankruptcy for businesses that are closing.
  4. 4. CHAPTER 11 BANKRUPTCY  Businesses that file Chapter 11 bankruptcy usually do so with the intention of staying in business, in hopes to become more profitable and protect themselves from creditors.  Typical debts and contracts that can be cancelled include secured and unsecured loans, real estate leases, supply and vendor contracts, loan contracts and executory contracts.  Plans are made to pay off creditors over a designated period of time.  Chapter 11 bankruptcies can be much more complex than Chapter 7.
  5. 5. SERVICE SECTOR BANKRUPTCIES  The service industry is the nation’s biggest employers. It’s also one of the most competitive markets for starting a business.  It is estimated that one out of four restaurants close, or change ownership, within their first year of opening. That number rises to somewhere around 60% when a five-year span is taken into account.  In the first three quarters of 2015, service sector bankruptcies accounted for 35.95 percent of all business bankruptcies filed in the U.S.  However, that number is down 10 percent from 2013.
  6. 6. ENERGY SECTOR BANKRUPTCIES  Energy sector bankruptcies, especially in the coal mining industry, have seen large increases in recent years.  U.S. coal production slid 15 percent in the last seven years, forcing many companies to choose the path of bankruptcy.  In the third quarter of 2015, mining sector bankruptcies accounted for 10 percent of all bankruptcies filed.  National headlines were made when it was reported that Chapter 11 bankruptcy filings for July of 2015 had jumped 77 percent, fueled in large part by the energy sector - specifically oil, gas and coal.  At Bunch & Brock, we have assisted numerous debtors in the coal industry through the bankruptcy process, including James River Coal Co., Appalachian Fuels, LLC, Cook & Sons Mining, Inc., and T&T Energy, LLC.
  7. 7. HOSPITALS AND HEALTHCARE BANKRUPTCIES  A study looking at hospital bankruptcy filings from 2000-2006 found that 67 percent of these facilities closed, while the other third remained open after bankruptcy.  The same study found that the majority of the filings were done by smaller hospitals, which were not part of a larger health system.  A USA Today article discussing the financial difficulties of rural hospitals looks at Kentucky’s own Nicholas County Hospital, who found themselves $2.3 million in debt when they filed for Chapter 7 bankruptcy.
  8. 8. GENERAL SMALL BUSINESS BANKRUPTCY  In the third quarter of 2015, 75 percent of all businesses filing for bankruptcy were businesses generating $2.5 million or less in sales, a grim outlook for the state of small businesses.  In that same quarter, 84 percent of all bankruptcy filings were businesses with less than 50 employees.  Rising interest rates will make taking on more debt even more difficult for small to mid-size businesses, leading to a likely increase in the number of small business bankruptcies.
  9. 9. COMMON MISTAKES WHEN FILING FOR BANKRUPTCY  If you are going to choose the path of bankruptcy, or even if you’re considering doing so in the near future, avoid making these common mistakes:  Failure to disclose the whole truth  Using credit cards before filing - certain charges and cash advances within 90 days of filing may be ineligible for discharge.  Transferring property prior to filing - this might open you up to investigation for intent to hinder, delay or defraud a creditor.  Failure to obey court orders  Paying debt to family or friends before filing for bankruptcy
  10. 10. HOW WE CAN HELP The Kentucky bankruptcy law firm of Bunch & Brock views bankruptcy as an opportunity for a new financial beginning, and we have helped thousands of consumers and corporations lower the amount of debt they owe (often eliminating it completely) while increasing the period of time in which the debt has to be paid. We’re familiar with every aspect of debtor and creditor issues, in and out of a bankruptcy setting, and we are committed to supplying you with the services you need to secure a better financial future.
  11. 11. ARE YOU CONSIDERING BANKRUPTCY? BUNCH & BROCK IS COMMITTED TO PROVIDING EACH OF OUR CLIENTS WITH A HIGH LEVEL OF PERSONAL SERVICE AND REAL SOLUTIONS TO FINANCIAL TROUBLES. IF YOU ARE A KENTUCKY BUSINESS OWNER WHO IS CONSIDERING FILING FOR BANKRUPTCY OR WANTS TO KNOW MORE ABOUT THE PROCESS, CONTACT US TODAY (859-254-5522) TO SCHEDULE A FREE CONSULTATION. WE WILL ASSESS YOUR SITUATION, EXPLAIN THE RULES AND HELP YOU DETERMINE WHETHER BANKRUPTCY IS RIGHT FOR YOUR CIRCUMSTANCES. WWW.BUNCHANDBROCKLAW.COM

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