Filing Chapter 11 bankruptcy follows the same initial procedures as filing bankruptcy under other chapters. The process starts with general filings of the bankruptcy petition, statement of financial affairs, and supporting schedules. These are essentially the same forms that are required in consumer bankruptcy cases, except that the questions are answered in a different manner because the petitioner (debtor) is an operating business.
Chapter 11 bankruptcy is different from consumer bankruptcy petition in that it requires immediate supplemental filings of "first day motions." An operating business must acquire court approval to continue its operations immediately upon filing Chapter 11 bankruptcy. For instance, approval is immediately required to authorize wage payments accrued prior to filing. These kinds of payments are needed so employees of the business going bankrupt are not forced to resign and find another employment. First day motions are also issued so that the business can continue to pay vendors, suppliers, and other people, parties, and entities that the business uses.
A package regarding the standard operating guidelines is sent to Chapter 11 debtors from the US Trustee's office. Should a creditor have a lien on the filer's or debtor's cash in the banks, the ruling court would authorize the debtor to use this cash for the business' operations.
Find a qualified bankruptcy attorney to draft your first day motions prior to filing. This way, documents can immediately be submitted and filed after the bankruptcy petition. The court is going to hear these first day motions on an emergency basis, then issue appropriate orders so the business may survive. During the hearing, the court will also issue orders to determine whether the debtor's filing is in compliance while setting forth standards and guidelines that the court expects the debtor's operation to follow.
First day motions are heard on an emergency basis, rather than the first day after filing. This is often within the first week of the petition. A notice is also given to the creditors, where the petitioner has their contact information. As a practicality, some first day motions are heard before, some creditors give notice.
First day orders also include an application by the bankruptcy lawyer to be retained by the petitioner, authorizing the debtor to pay him/her up to 70% of the up-to-date billing, provided that the billings may be examined by the court later.
About The Author:
The Law Offices of Justin McMurray, P.A has the ability to effectively handle nearly every bankruptcy & foreclosure case. The Law Offices of Justin McMurray, P.A. reviews your case and help you to decide whether this is the best option for you or not. The firm guides you throughout the process to ensure you get the most out of this opportunity to make a fresh start in life.
Both the LLC and S corporation are well-liked among accountants and small businesses because of their “pass-through” tax treatment. Unlike a C corporation, both of these structures do not pay taxes on business profits; rather profits are passed along to the owner(s) and reported on their individual tax returns. Moreover, both structures separate the owners from the business and provide liability protection.
However, there are some differences between the two. For example, an LLC is typically much easier to run from an administrative standpoint. There are fewer state filings and forms, lower start-up costs, fewer formal meetings and documentation than there are with a C or S corporation. This conceivably could be advantageous to small business owners who don’t want to be bothered with excess paperwork.
The LLC also offers more flexibility in how owners can allocate a percentage of profits and losses among its owners. Example: you start a business with a friend and you each own 50 percent of the business. One year, your friend has something come up in her personal life and doesn’t spend as much time on the business as you have. You both ultimately decide that the fair thing to do would be to give you 60 percent of the profits for the year. If you had formed an S corporation, you would both still be taxed based on the percentage of your ownership (i.e. you would be taxed on 50 percent of the profits; your fellow shareholder on 50 percent, even though you might have agreed to a different “arrangement”). Conversely, the LLC does give you the flexibility to determine how you want to allocate your business’ profits so that each owner canl be taxed accordingly.
Nevertheless, there is a critical advantage of an S corporation with regard to taxes. The S corporation gives you more flexibility in how earnings are paid to the owners. Example: with an LLC, the entire net earnings are passed along to the owner(s) in the form of self-employment income and are consequently subject to self-employment tax for Social Security and Medicare. However, with the S corporation, you have the option of dividing up earnings into wages/salaries versus passive income in the form of distributions. Only the wages/salaries are subject to the FICA tax for Social Security and Medicare. The “passive” distributions are not. IMPORTANT NOTE: keep in mind that as an owner working in your business, you must pay yourself a reasonable salary for the job you do. You cannot get away with giving yourself a $40,000 annual salary and taking $175,000 in distributions, for example.
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