You have worked hard to get your corporation viable and profit-making, having invested large amounts of money and time and perhaps hiring employees to realize your business dream. Unfortunately, because of the economy or other factors, your business is struggling, creditors are hounding you, and you may even have lawsuits filed against you as well as tax issues.
You, or the corporate board, may have borrowed money to keep the corporation afloat and business may be picking up, but time is running short and there are legal actions that could threaten the continued viability of your business.
If this is your situation or you are experiencing something similar, you are not alone. There are often factors beyond your control that are adversely affecting your business, but there are steps you can take to keep your business going or to dissolve it and start anew. You can seek the services of a tax debt attorney if your main problems are tax-related, or consult with a corporate bankruptcy attorney.
Bankruptcy is a dirty word to many people and businesses but it can be a useful tool for corporations to reorganize its debts and business operations or to discharge debts and dissolve the business.
How Can a Tax Debt Attorney Help?
Tax problems can be a major headache for any business. In some situations depending on the type of tax and how old it is, you may be able to discharge the debt in bankruptcy but there are other options, especially if you want your corporation to continue operating.
Offer in compromise
One option is an offer in compromise, which is an agreement with the IRS to pay it less than what your corporation owes. These agreements are best for you if your company is unable to work out an acceptable payment plan.
The IRS does not have to accept an offer in compromise and for this reason, you need competent legal counsel to make a professional representation to the IRS with full documentary support to give you the best opportunity for acceptance. In many cases, you can make a lump sum payment to satisfy your debt obligation for less than 50% of your tax obligation, or even much less than that in some cases.
If you cannot make a lump sum payment to satisfy your company’s tax obligation, you may be able to make installment payments. Like offers in compromise, the IRS is not required to accept such an agreement. An attorney who has had success with the IRS in preparing and presenting installment agreements is essential to its acceptance.
Any of these options can save you thousands of dollars and offer you and your creditors the confidence that your business will continue to operate.
How Can a Chapter 11 Bankruptcy Help?
If you are incorporated and contemplating bankruptcy protection, your choices are either Chapter 11, a reorganization, or a Chapter 7, a liquidation. If you want to remain in business, then a Chapter 11 might be your best option given your circumstances.
Filing for bankruptcy can be a complicated process that only an experienced tax debt or bankruptcy attorney can handle. Before you file, you should consult with a bankruptcy attorney who has handled Chapter 11 petitions and corporate tax issues.
No Chapter 11 filing is the same. Your corporation may be in a forced involuntary bankruptcy proceeding under Chapter 7 in which case a Chapter 11 reorganization plan can enable your company to exit from the liquidation of the corporate assets. Another option may be liquidating the corporation so that the highest value is paid for business assets.
No More Harassing Phone Calls
The first benefit of bankruptcy protection is that all collection activity is enjoined, or must cease including any legal proceedings related to the corporate business according to the automatic stay provision in the bankruptcy code. Any violation of the automatic stay by creditors can subject them to severe penalties. This includes creditor phone calls and correspondence demanding payment.
Implement New and Effective Practices
Once you file, you and your attorney with the help of financial analysts in large and complex cases will prepare and present a debt reorganization plan to a committee of your creditors. Most creditors do want to be paid and are willing to be flexible but it helps if you can eliminate ineffective practices, unfavorable contracts, and terminate nonproductive employees. In some cases, you may have to close stores while your attorney can renegotiate new contracts with suppliers or unions. Leases that are too restrictive or burdensome can be voided in bankruptcy and redone on more favorable terms
If you can present a new plan for operations that appears reasonable and is workable, your creditors may be more accepting even if it means they will receive less than your financial obligations to them.
Chapter 7: A liquidation
For other businesses, you may have reached the breaking point and your counsel, financial advisers, and others may conclude that liquidation is best. Once you file, the trustee will take charge of your company and may continue to operate your business for a time but will then oversee the collection, marketing, and sale of the assets. The corporate shares may continue to be sold, however, if not on Nasdaq or the New York Stock Exchange, then on the OTCBB or Pink Sheets. In a Chapter 7, the secured creditors, like banks, are paid first or their collateral returned to them, and the owners paid last, if anything remains.
Seek legal advice if your corporation is experiencing financial problems and is facing lawsuits or other legal action that could significantly affect your business operations.
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