Why Your Business Needs a Licensed Bankruptcy Attorney

When your business is drowning in debt, the attorney you choose can make the difference between a fresh start and financial disaster. But here's what many business owners don't realize: Not every lawyer is qualified to handle bankruptcy cases

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Business bankruptcy is a specialized area of law that requires specific knowledge, training, and experience. Working with an attorney who regularly practices bankruptcy law is essential to protecting your business, your assets, and your future.

What Does It Mean to Be Licensed in Bankruptcy Law?

Here's something that surprises most people: A law degree alone doesn't make someone a bankruptcy expert.

In California, attorneys can become certified specialists in Bankruptcy Law through the California Board of Legal Specialization. This certification requires:

• A minimum number of years practicing law

• Extensive experience handling bankruptcy cases specifically

• Passing a rigorous written examination

• Continuing education in bankruptcy law

• Peer reviews from other attorneys and judges

Think of it this way: You wouldn't hire a general practitioner to perform heart surgery. The same logic applies to your business bankruptcy. You need someone who lives and breathes bankruptcy law every single day.

Why Business Bankruptcy Is Different from Personal Bankruptcy

If you think business bankruptcy is just like personal bankruptcy with bigger numbers, think again.

Business bankruptcy involves layers of complexity that personal cases simply don't have. You're dealing with:

Corporate structure issues. Is your business a sole proprietorship, LLC, partnership, or corporation? Each structure has different implications for bankruptcy filing.

Multiple stakeholders. Your business bankruptcy affects employees, vendors, creditors, and potentially investors. Each group has different rights and priorities.

Asset liquidation decisions. Which business assets can be protected? What needs to be sold? These decisions require deep knowledge of bankruptcy exemptions and business valuation.

Tax consequences. Business debt forgiveness can trigger significant tax liabilities. A bankruptcy specialist knows how to minimize these impacts.

Operational continuity. For Chapter 11 reorganizations, you need a lawyer who understands how to keep your business running while restructuring debt.

An attorney without bankruptcy specialization simply doesn't have the depth of knowledge to navigate these issues effectively.

What Are the Types of Business Bankruptcy?

Understanding your options is the first step toward making the right decision for your company.

Chapter 7 Business Bankruptcy

Chapter 7 is liquidation bankruptcy. The business stops operating, and a trustee sells the company's assets to pay creditors.

Best for: Businesses that can't be saved or when the owner wants to close the business and move on.

What happens: The bankruptcy trustee takes control of business assets, sells them, and distributes proceeds to creditors according to priority. A business does not get a discharge in Chapter 7, only individual and joint filers can obtain a discharge in bankruptcy.  When the case is over, the case just closes and you have a business that was liquidated  in Chapter 7.  The business still owes the debt, but its assets have all been liquidated.

The catch: If you're a sole proprietor, your personal assets may also be at risk since there's no legal separation between you and your business.  A sole proprietor bankruptcy is actually an individual bankruptcy that includes personal debts as well of the debts of the sole proprietor.  Since the sole proprietor is an individual bankruptcy filing, the individual gets a discharge of debts for both personal and business debts.

Chapter 11 Business Bankruptcy

Chapter 11 is reorganization bankruptcy. The business continues operating while restructuring its debts under court supervision.

Best for: Businesses worth saving that need time to reorganize, renegotiate contracts, and develop a repayment plan.  Your business is worth saving if it can operate profitably but had a bad history and needs more breathing room to deal with creditors in a restructure.  If the business is continually losing money month to month and can only operate by borrowing more money and getting deeper into debt, a bankruptcy will not help and in fact may further burden the business with additional costs such as attorneys’ fees, filing fees, and costs associated with reporting and complying with U.S. Trustee guidelines.

What happens: You propose a reorganization plan showing how you'll pay creditors over time. The court must approve this plan. You maintain control of daily operations while working through the process.

The complexity: Chapter 11 is the most complicated form of bankruptcy. It requires sophisticated legal strategy, ongoing court appearances, and detailed financial reporting.

Chapter 13 for Small Business Owners

If you're a sole proprietor, you might qualify for Chapter 13 personal bankruptcy, which can address business debts.

Best for: Sole proprietors with regular income who want to keep their business operating while repaying debts over three to five years.

What happens: You make monthly payments to a trustee who distributes funds to creditors. At the end of the payment period, remaining eligible debts are discharged.

The Hidden Dangers of Working with an Unqualified and Inexperienced Bankruptcy Attorney

Choosing the wrong attorney can cost you everything. When you're already facing financial crisis, the last thing you need is an attorney who makes things worse.

Bankruptcy operates on strict timelines that aren't negotiable. Miss a filing deadline, and your case could be dismissed entirely. Even worse, you could lose critical protections like the automatic stay that stops creditors from pursuing collection actions. Asset protection is another area where inexperience causes devastating losses. An attorney without bankruptcy specialization might overlook exemptions that could have saved equipment, inventory, or even your business premises.

For businesses attempting Chapter 11 reorganization, a poorly structured plan is essentially worthless. The court won't approve a plan that doesn't meet legal requirements, and creditors won't vote for one that doesn't make financial sense. Get it wrong, and you've wasted months and thousands of dollars only to end up back at square one.

Perhaps most dangerous is the personal liability exposure that occurs when bankruptcy isn't handled correctly. If certain mistakes are made during the process, that corporate veil can be pierced. Suddenly, you're personally liable for business debts you thought were separate. This single mistake can destroy your personal finances for years.

What to Look for in a Business Bankruptcy Attorney

Not all bankruptcy attorneys are created equal. Before you trust someone with your business's financial future, verify they have the right qualifications.

First, ask if they're certified by the State Bar as a bankruptcy specialist. In California, this certification requires extensive experience, passing a comprehensive exam, and ongoing education in bankruptcy law. It's the difference between someone who occasionally handles bankruptcy and someone who has dedicated their practice to it.

Experience with business bankruptcies specifically matters too. Ask how many business cases they've handled, what types of businesses, and what the outcomes were. You also need to know who will handle your case. Will it be the attorney you hire or a paralegal? Transparent pricing should be a given, with clear, upfront costs and no surprise bills.

Most importantly, the right attorney will give you honest advice; even if that means telling you bankruptcy isn't your best option. They'll explore alternatives and prioritize your interests. Pay attention to their communication style during your consultation. If you're confused now, it won't get better once you're in the middle of your case.

When Should a Business Consider Bankruptcy?

Timing matters in bankruptcy. File too early, and you might miss other solutions. Wait too long, and you could lose valuable protections.

The clearest sign is when your business cannot pay bills as they come due. When you're regularly choosing which vendors to pay or using credit cards to cover payroll, the situation has become unsustainable.

Lawsuits and judgments from creditors represent another critical threshold. Once creditors start filing lawsuits, they've lost patience. Wage garnishments and bank levies are particularly urgent. These can cripple operations overnight. Foreclosure threats on commercial property should also trigger serious consideration, as losing your location can mean losing the business entirely.

Sometimes the trigger is a fundamental business change rather than a specific collection action. Loss of a major client, permanent industry changes, or departure of a key partner can create situations where debt becomes unmanageable. A qualified bankruptcy attorney can evaluate your specific situation and help determine if bankruptcy is the right move. And if so, when to file for maximum benefit.

Law Office of W. Derek May Can Help with Your Business Bankruptcy

Navigating business bankruptcy requires specialized knowledge and personalized attention. At Law Office of W. Derek May, we help business owners find relief through Chapter 7, Chapter 11, and Chapter 13 bankruptcy solutions tailored to your unique situation.

Attorney Derek May is certified as a specialist in Bankruptcy Law by the California Board of Legal Specialization with over fifteen years of experience. He is affordable, provides honest advice, won't recommend services you don't need, and works with you directly throughout the entire process. Mr. May’s office will handle your case efficiently and professionally from start to finish.

You might have found us through a referral from a satisfied client or by searching for "business bankruptcy attorney near me." No matter how you discovered us, we're ready to help you navigate this challenging time. You can schedule a consultation or submit our online form, and we’ll reach out.

Let us support your journey to financial freedom with the specialized expertise you deserve.