One of the primary changes made in business bankruptcy law relates to who can file for certain types of business bankruptcy. According to U.S. Bankruptcy Code, to qualify for relief under Chapter 7 the debtor may be an individual, a partnership, a corporation, or other business entity. A Chapter 7 differs from a Chapter 11 or Chapter 13 bankruptcy because the debtor eliminates most debt without having to repay their creditors. Another difference between Florida business bankruptcy laws and the other states relates to income guidelines. New laws in 2005 changed the regulations and applicants for Chapter 7 must meet both income and means tests as established by Florida business bankruptcy laws. This means that your current income must be measured against the median income in your state. If your income is higher than that amount, you must pass the means test, which involves determining the amount of disposable income you have after allowable expenses and required debt payments have been subtracted. You must have less than a specific amount of money left over each month in order to be allowed to file for Chapter 7. Chapter 7 bankruptcies were designed for businesses not able to make continuing payments toward repaying their unsecured debts.
Florida business bankruptcy laws also regulate which assets are considered to be exempt and nonexempt. All eligible assets under Chapter 7 will be turned over to the court in order to be liquidated by the appointed trustee. Funds from the liquidation will be used to pay business debts. Eligible items may include additional vehicles beyond your primary vehicle, boats, motorcycles, or items determined to be luxuries and non-essential for earning a living. It is also important to keep in mind that you can only claim exemptions on assets if you have lived in Florida for a minimum of two years. If you have lived in the state for less than two years, then exemptions from whatever state you previously lived will apply.
When a business does not qualify for Chapter 7, they may opt for another form of bankruptcy such as Chapter 11. Filing Chapter 11 bankruptcy permits a business, whether a corporation or sole proprietorship, to repay their debt under a plan for reorganization. Control of routine business operations remain with the filer but the business itself is under the jurisdiction of the Federal Bankruptcy Court. This type of bankruptcy is considered business reorganization because it allows you to restructure your business so you can continue day-to-day operations. A court ordered and supervised Chapter 11 bankruptcy business reorganization can enable your business to work through insolvency. Chapter 11 provides most businesses a legal path to reorganize their finances and pay debts over a time period established by their plan. Businesses can avail themselves of Chapter 11 debt relief if they wish to remain in business and are able to show they can do so successfully. There is no statutory limit as to the amount of debt the filer has.
Any type of business can file a Chapter 11 bankruptcy including individuals, a sole proprietorship, partnerships, limited liability companies, and corporations. In Florida, individuals have the option of establishing a company under a fictitious name registration and this qualifies as a sole proprietorship. The single requirement is that the filer be a business and have the ability to remain in business, if a plan for reorganization of its debts will enable it to be a successful going concern after completing this plan. Under this type of business bankruptcy, your business can continue to operate without risk of closure from creditors and judgments from lawsuits and property liens that would normally put you out of business. Filing a Chapter 11 bankruptcy gives your business the chance to formulate a plan and the time period will usually be 120 days or until the statutory automatic stay is lifted by a creditor. In most cases, your creditors will cooperate because they will benefit from the successful results of a reorganized debtor. The court may also authorize your business to terminate unfavorable leases and avoid disabling contractual obligations you would be subject to if you did not file business bankruptcy.
In Florida, you are required to complete credit counseling before you can file any type of business bankruptcy and the counseling must be completed through an agency that has been approved by the United States Trustee. The purpose of this law is that such training will provide you the information necessary to determine whether filing for bankruptcy is really necessary in your situation. The law was also passed so that business owners had the option of a repayment plan helping them meet their financial obligations. Along with the initial counseling, you will also have to participate in a separate counseling session that will take place toward the conclusion of your bankruptcy case. The purpose of this counseling is to provide you with financial management training.