With the Co-Vid 19 Pandemic running wild many Everett video game storeowners are shutting their doors, but what if there was a better solution? What if you simply could restructure your debt so that you could continue to stay in business? This article will show you exactly why and when you should file chapter 11 bankruptcy.
In essence Chapter 11 is part of the bankruptcy code that would allow Washington Business owners to restructure their debt. In most cases Chapter 11 involves huge amounts of money (so we usually see large corporations use this tactic), however the small time business owner (such as a video game store owner) can easily file Chapter 11 too.
Chapter 11 Bankruptcy is the best solutions if you have a lot of assets and a lot of debt. Most businesses file chapter 7 or 13 because the are much cheaper and much quicker, but chapter has its own unique qualities that can surpass chapter 7 and 13.
What Exactly is Chapter 11 Bankruptcy and How does it Apply to a Video Game Store in Everett, WA?
Chapter 11 Bankruptcy is often referred to the reorganization bankruptcy. The main point is to keep a business still able to operate while they work out their debt and finances.
Any video game store can file Chapter 11 when they feel the need, but it can also be forced on them. If creditors (3 or more) want to be paid they can ask a bankruptcy court to apply chapter 11 to the business they’re trying to collect from.
If a creditor files against a video game store the owner has 4 months to come up with a plan to reorganize their debt, however, most Washington courts will grant up to 18 months for this to happen. If the video game store owner refuses or doesn’t not meet the time limit then the creditor can reorganize their debt for them.
The reorganization is a legal contract between the video game store and any or all creditors. Every plan will include downsizing (less employees, smaller store, etc.) to reduce expenses.
Once the plan has been finalized the creditors get to review and either accept or decline. However, most creditors accept the plans since the alternative is for the Everett Video Game store to file Chapter 7. If the Washington game store files chapter 7 then all assets are liquidated and there is a slim chance the creditor will receive anything.
The amazing thing about Chapter 11 in Washington is there is usually no time limit on repaying. The average time span is 6 months to 2 years.
Where chapter 11 gets tricky is in the cost. The filing fee is Everett, WA is close to $2k, however once everything gets done the legal fees hinge around $10,000 and some companies have been known to spend millions.
Chapter 11 Personal Bankruptcy in Washington
To qualify for Chapter 11 Personal Bankruptcy you cannot have more than $400k in unsecured debt (credit cards) and no more than $1.2 million in secured debts (cars, boats, houses).
This is why you see real estate investors and celebrities filling for Chapter 11. For example if you own a property worth $103,000 but owe $160,000, you can lower the balance to the value of the property, so under a Chapter 11 you now would only owe $103,000. This is why this might be the best way to file bankruptcy, especially if you own secure assets.
Also under Chapter 11 in Washington, you can lower your interest rates and renegotiate repayment, which would lower your monthly bill.
What are the Differences Between Chapter 11 and Chapter 13 Bankruptcy in Everett, Washington?
They are both the same in that businesses are still allowed to run as they reorganize their debt. You cannot qualify for either one if your bills exceed $1.2 million for secured debt and $400k for unsecured debt.
Chapter 13 is much cheaper and easier to navigate than Chapter 11 which is why more people and businesses (video game store included) usually opt for it. When you file for chapter 13 bankruptcy in Washington a trustee is always appointed. This trustee looks at the reorganization plans and puts in their input on how the court should proceed. This trustee also collects all payments and is the liaison to the creditors. If for any reason the video game store does not make repayments a trustee can tell the court to dismiss the chapter 13 and immediately file for chapter 7 so that everything can be liquidated. This is one of the major downsides to filing chapter 13 over chapter 11.
Chapter 13 bankruptcies are approved quicker and easier than chapter 11 bankruptcies since creditors have no say on the reorganization plan.
What are the Differences Between Chapter 11 and Chapter 7 Bankruptcy in Everett, Washington?
When a Washington video game store wants to file for chapter 7 bankruptcy, there is no reorganization of debt or any ability to continue to operate business. It is a direct closure of business and selling off of all assets to pay off debts. Just like in a chapter 13 a trustee is appointed to sell off a business or persons non-essential assets (houses, cars, jewelry, even clothing!). The only thing you can protect during a chapter 7 are necessary clothing, pensions, household goods, and certain sentimental jewelry (as long as it doesn’t hold a lot of monetary value).
When everything is sold the proceeds go to collectors and the video game storeowner is then considered legally clear of the debt. There is not a lot of “legal fees,” except the filing fee of around $300.
The major downside to a chapter 7 bankruptcy is your credit score will take a big hit and it will be impossible to get a loan at a decent interest rate.
As you can see there are benefits and some downsides to filing a chapter 11 bankruptcy Everett WA. You can see the differences between Chapter 11, Chapter 13, and Chapter 7. It comes down to do you want your video game store to stay in business? If so, then chapter 11 or 13 is the only options. You simply need to compare the two and decide which is best for you.