Find Out How to Address Your Business Debt with a Business Bankruptcy Lawyer
We admire small business owners’ tenacity and drive. It takes a great deal of strength to get your business up and running, but, once you do, the results benefit our community and make the Denver area a better place to live.
That’s why we support small business owners at every phase of their journey, including when times get tough. The Wink Law Firm provides key debt relief solutions, including help to restructure your business when your first attempt doesn’t go as planned.
One of the biggest financial commitments a small business owner typically faces is the business lease. These leases can be extremely expensive because of both high monthly rental rates and long lease terms of 5 years or more. And it’s easy to get behind on business lease payments, especially when you’re focused on keeping your business in the black.
The Wink Law Firm provides assistance for small business owners to overcome business-lease debt with Chapter 7 bankruptcy, while helping you avoid the expenses associated with Chapter 11 bankruptcy.
What You Need to Know About Colorado Bankruptcy and Your Business Lease
When you signed your business lease, took out small business loans, or initiated a merchant cash advance (MCA), you may not have recognized a hard truth about these forms of debt: most business loans and leases are all personally guaranteed. This means that you are personally responsible for paying these loans. If your business is unable to pay the debt, the landlord will sue you personally to enforce the guarantee. When this happens, it is possible the landlord will be able to garnish funds in the bank or put a lien on your home.
As a result of these agreements, our clients often ask these common questions, which we’ve answered here:
- My business is an LLC or corporation. Doesn’t that protect me from liability?
An LLC or corporation does typically shield the business owner from personal liability for the business debt. For example, if a customer slips and falls in your business premises, they can sue your LLC, but will very likely not be able to sue you personally. This means your personal assets, such as your home, are safe from that creditor of the LLC. However, most small businesses are thinly capitalized, which means they don’t have much in the way of assets and have a high risk of default on business loans and leases. Banks, vendors, and business landlords know this, which is why these creditors often require a personal guarantee for the business lease or loan. The personal guarantee acts as a separate agreement between you and the landlord which makes you personally responsible for performance under the lease. - What if I pledge business assets as collateral for my small business loans?
In an attempt to minimize their risk of default, many business creditors will require your business assets be pledged as security for the loan it extends to your business. For example, the SBA has required that all the business’s assets be pledged as collateral for EIDLs of $25,000 or more. If your business then fails to pay the loan, the creditor can take business assets and sell them to apply the proceeds to the loan. It is possible that some business creditors will require collateral and a personal guarantee. In the most extreme cases, the creditor can require you to pledge your personal home as collateral for the business loan. Prior to COVID-19, this is how many SBA loans were structured. - How do I know for sure if my debts, including my business lease, are personally guaranteed?
Personal guarantees are often a separate agreement that is signed as part of the note and security agreement (if collateral is being pledged). However, sometimes the personal guarantee is buried in the terms of the note. A bankruptcy attorney at The Wink Law Firm can examine your signed contracts to understand the terms of your lease and other business debts. Many small business loans are personally guaranteed. - I’ve read that I may need to file for personal bankruptcy in Chapter 7 bankruptcy to discharge my business debt. What about business bankruptcy in Chapter 11 or Subchapter 5 bankruptcy?
Chapter 11 is extremely expensive, and the fees associated with it are typically not practical for small business owners. While Subchapter 5 is meant to be a practical alternative for small businesses, it is also very expensive. Both Chapter 11 and Subchapter 5 bankruptcy require that your business has cash flow and are only an option for profitable companies that are unable to meet their existing debt service obligations. If your company isn’t profitable enough to provide for you and your family even without debt payments, these forms of bankruptcy are not practical. Even if Subchapter 5 bankruptcy is a viable option for your business, it will not remove your personal guarantee of the business debt. So personal bankruptcy for the business owner is often required in conjunction with a Subchapter 5 bankruptcy, which further adds to cost. Because of these limitations with business bankruptcy, it is often prudent for a business owner to dissolve the LLC or corporation and file personal bankruptcy. In many cases, the business owner can continue running the business through bankruptcy as a sole proprietor. This combination of dissolution and personal bankruptcy can be a very cost-effective way for a small business owner to achieve debt relief for herself as well as her business. The Wink Law Firm can help you make a decision about whether this option is right for you. - Is bankruptcy the only option for small business debt?
No. Businesses can often settle debt outside of bankruptcy. Debt settlement requires you to go into default on the loan obligation before the creditor will accept less than is owed to settle the debt in full. Settling small business debt will typically settle your personal liability for guaranteed debt. However, settling business debt is riskier for secured debt because the creditor can attempt to foreclose on assets before entertaining any settlement offers. Similarly, you can almost never settle a business lease without first losing possession of the leased premises. If you are considering debt settlement for your business, The Wink Law Firm can help you evaluate the risks of going into default on your different types of business debts and negotiate settlements with your business creditors.
How Personal Bankruptcy for Your Business Lease Debt Provides Real Relief
The Wink Law Firm’s business bankruptcy lawyers have a solution that can quickly get you out of business debt. We can help you discharge your debts in bankruptcy or settle them outside of bankruptcy, so that you can get rid of those past-due statements, warnings from creditors, and collections calls.
We recommend that you consider the following debt relief strategies if you are unable to repay your business-related debts:
- Determine if you’re a good candidate for personal bankruptcy. If so, you should consider restructuring your business as a sole proprietorship prior to filing bankruptcy. You can then file for Chapter 7 or Chapter 13 bankruptcy, discharge your debt, and keep your business going. In fact, you get to keep up to $60,000 in “tools of the trade” business assets.
- If bankruptcy is not a good option, explore settlement of your business debt outside of bankruptcy. If your business has cash flow that you can save when it stops paying debt, or you otherwise can access funds for settlement, settling business debt can be a cost-effective way to get out of business debt.
Get Relief with Bankruptcy for Your Business Lease and Other Debt in Colorado
No matter how you choose to proceed, The Wink Law Firm in Denver has your best interests in mind. We protect you from the expenses associated with Chapter 11 bankruptcy by offering a far more cost-effective bankruptcy solution.
Our goal is to shield you personally while enacting a strategy to potentially help you keep your business, if possible. We know how important your business is to you as an entrepreneur. We’re here to ensure you have a bright financial future ahead of you.
Schedule a free consultation with our business bankruptcy lawyers by contacting us online or by calling The Wink Law Firm at (720) 523-0620.