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| | | Bankruptcy laws are intended to protect, if possible, a troubled business and provide orderly distributions to its creditors by either reorganizing or liquidating the business. Bankruptcy is a legal process in which the court administers the property and other assets (referred to as the estate) of a financially floundering business (the debtor) for the benefit of creditors. The most common types of business bankruptcies are Chapter 7, a straight liquidation of the company's assets, and Chapter 11, which allows a business to propose a plan of reorganization to keep operating while paying its creditors over time. | | |
| Typical costs: | - Bankruptcy attorneys may charge a flat fee for specific services or at an hourly rate of $100 -$300 or more. Some lawyers require full payment in advance while, depending on circumstances, others may accept a lower advance fee plus installment payments.
- Hiring an attorney to handle a straightforward Chapter 7 business liquidation bankruptcy starts around $1,000 -$3,000 but can easily run $3,500 -$5,000 and more.
- Hiring an attorney to handle a Chapter 11 business reorganization bankruptcy starts around $10,000 -$25,000 in some locations, but goes up quickly. A Florida attorney estimates that a Chapter 11 bankruptcy can cost a small business $25,000 -$50,000, a medium-sized company $50,000 -$100,000, and $100,000 -$500,000 for a large business.
- The bankruptcy court filing fee is $299 for Chapter 7 and $1,039 for Chapter 11, but (depending on your location and circumstances) you might be eligible to apply to pay the fee in installments or to have it waived.
What should be included: | - In most cases, bankruptcies are filed in federal court; bankruptcy cases cannot be filed in state courts. Federal bankruptcy law is organized into chapters that govern specific types of bankruptcy proceedings.
- Creditors can force a business into an involuntary bankruptcy under Chapter 7 (not a common occurrence), but a Chapter 11 bankruptcy is voluntary.
- The bankruptcy process generally takes about 4-6 months, although it varies depending on circumstances. USCourts.gov outlines bankruptcy basics for the different types of bankruptcies as well as a glossary of common bankruptcy terms.
- Bankruptcy is an extremely complicated process. BankruptcyVisuals.com offers charts of the standard procedures for Chapter 7 and 11.
Additional costs: | - Many bankruptcy attorneys provide a free initial meeting but others may charge $100 -$300 or more to listen to your story; analyze any lawsuit, liens or other documents; and lay out your options. .
Shopping for a business bankruptcy attorney: | - Ask potential bankruptcy attorneys about their training and experience. Request references from a bank, other lawyers and several certified public accountants who have worked with that attorney. Lawyers.com offers tips for selecting a business bankruptcy attorney and then preparing to meet and meeting with that attorney.
- Search the American Board of Certification for attorneys certified as specialists in business bankruptcy, consumer bankruptcy and creditors' rights law. Bankruptcy lawyer referrals are also available from Lawyers.com and FindLaw.com.
- Your attorney should provide you with a written fee agreement. Be sure you understand what you will owe in legal fees, and when.
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Article updated November 2008 |
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