Can a Business File for Bankruptcy Without Hiring an Attorney?

 When a business faces overwhelming debt, filing for bankruptcy can be an option to help it reorganize or eliminate debts. However, many business owners find themselves asking: Can I file for bankruptcy without hiring an attorney?

The answer is yes, a business can technically file for bankruptcy without an attorney. This is known as a pro se filing. However, whether or not it's advisable to do so depends on the complexity of the business’s finances, the bankruptcy chapter being filed, and the potential risks involved. In this blog, we will explore the implications, advantages, and risks of filing for bankruptcy without legal representation, and why hiring an attorney might be the wiser choice for most businesses.

1. Types of Business Bankruptcy and the Role of an Attorney

There are several types of bankruptcy that a business might file for, each with distinct procedures and complexities:

• Chapter 7 Bankruptcy (Liquidation): This type of bankruptcy is for businesses that are closing down or cannot continue operations. A trustee is appointed to liquidate the company’s assets to pay off creditors.

• Chapter 11 Bankruptcy (Reorganization): This is for businesses that want to continue operating while reorganizing their debts. Under this chapter, the business works out a plan with creditors to restructure its obligations.

• Chapter 13 Bankruptcy (Debt Adjustment): Typically for individual debtors, though sole proprietors can use this chapter. It allows for a reorganization of debts but is less common for businesses.

The process of filing for bankruptcy under these chapters involves submitting forms, providing financial disclosures, attending hearings, and working with the court to resolve the debt. In Chapter 7, the process may be more straightforward, but Chapter 11 is usually more complex, as it involves restructuring the business, negotiating with creditors, and presenting a reorganization plan. The more complex the bankruptcy, the more likely it is that hiring an attorney is necessary to ensure that everything is handled correctly.

2. The Pros and Cons of Filing Without an Attorney

While it is technically possible to file for bankruptcy without legal representation, business owners should consider both the advantages and the challenges involved.

Pros of Filing Without an Attorney:

• Cost Savings: One of the primary reasons a business may choose to file without an attorney is to save money. Bankruptcy attorney fees can be significant, particularly for Chapter 11 filings. Businesses with limited resources may feel they can’t afford legal assistance.

• Control Over the Process: Filing without an attorney allows the business owner to have full control over the bankruptcy process. They will be the one to decide how to present their case and negotiate with creditors.

• Simpler Cases: In certain cases, especially with Chapter 7 bankruptcy, where the business is liquidating and not continuing operations, the process might be relatively straightforward. Some businesses with uncomplicated financial situations may feel confident managing the paperwork and filings themselves.

Cons of Filing Without an Attorney:

• Complexity of the Process: Bankruptcy filings require knowledge of legal terms, forms, procedures, and deadlines. Mistakes made in filing the necessary paperwork could lead to the rejection of the petition or delays in the process. In Chapter 11, for example, the reorganization plan needs to be very detailed and accurate to be approved by creditors and the court.

• Risk of Mistakes: Filing without an attorney increases the likelihood of making errors, whether it’s providing incomplete or incorrect financial information, failing to submit required documents, or missing deadlines. These errors can significantly delay the bankruptcy process and may lead to legal consequences.

• Inability to Navigate Legal Nuances: Bankruptcy law is complex, and there are numerous nuances that a business owner may not be familiar with, especially when dealing with creditors, asset valuation, or liquidation. An attorney can help businesses navigate these challenges and prevent them from making costly mistakes.

• Limited Negotiation Power: Without an attorney, businesses may struggle to negotiate favorable terms with creditors. Bankruptcy attorneys are experienced in working with creditors and can help negotiate settlements that could reduce the amount owed or create more manageable payment plans.

• Risk to Business Operations: Especially for Chapter 11 bankruptcies, the failure to meet deadlines, submit correct documents, or comply with legal requirements could lead to the business’s inability to restructure successfully. In such cases, the business could end up closing its doors permanently, which could be avoided with legal guidance.

3. Can a Business File Chapter 7 Without an Attorney?

Chapter 7 bankruptcy, which involves liquidating assets to pay off creditors, can sometimes be filed without an attorney, especially if the business has relatively few assets, simple debts, and no complicated business structure.

The bankruptcy process in Chapter 7 requires filing a petition with the court, submitting financial records, and listing all debts and assets. These filings can be done by a business owner themselves. However, even in Chapter 7, there are still complex legal issues to address, such as:

• Valuing assets: Determining the value of assets and deciding whether to sell or liquidate can be tricky.
• Exemptions: There may be exemptions that could protect certain business assets from liquidation, which requires legal expertise.
• Secured vs. Unsecured Debts: Understanding how secured and unsecured debts are treated in Chapter 7 is important to avoid making costly mistakes.

A business that wants to avoid errors and ensure all processes are handled correctly may still benefit from the advice of a bankruptcy attorney in Chapter 7 cases.

4. Can a Business File Chapter 11 Without an Attorney?

Chapter 11 bankruptcy is far more complicated and is generally not advisable to file without an attorney. This chapter involves the reorganization of debts and requires detailed filings, including the creation of a reorganization plan that must be approved by creditors and the court.

The business will need to:

• Prepare detailed financial statements.
• File a plan of reorganization that outlines how debts will be repaid or restructured.
• Negotiate with creditors and possibly shareholders to gain their approval.

Given the complexity of Chapter 11 and the importance of a well-crafted reorganization plan, filing without an attorney can result in serious consequences, including the rejection of the plan or failure to emerge from bankruptcy successfully.

5. The Role of a Bankruptcy Attorney in the Process

A bankruptcy attorney helps businesses navigate the legal complexities of filing for bankruptcy. Attorneys can assist with:

• Understanding bankruptcy options: Determining whether Chapter 7, Chapter 11, or another type of bankruptcy is appropriate.
• Preparing and filing paperwork: Ensuring all required forms are filled out correctly and submitted on time.
• Negotiating with creditors: Helping businesses get the best possible outcome in debt restructuring or settlement.
• Protecting assets: Ensuring that business owners understand which assets are protected and which are not.
• Dealing with objections or disputes: Responding to creditor objections or challenges in court to ensure the process runs smoothly.

An attorney's involvement can make the bankruptcy process more efficient, reduce the risk of mistakes, and help achieve a better outcome.

6. How to File for Bankruptcy Without an Attorney

If a business decides to proceed without an attorney, here are some general steps to follow:

1. Determine Eligibility: Verify that the business qualifies for bankruptcy under the selected chapter.
2. Collect Financial Documents: Gather financial statements, tax returns, asset lists, and debt records.
3. Complete Bankruptcy Forms: Fill out the appropriate bankruptcy forms, including schedules of debts, assets, income, and expenses.
4. File with the Bankruptcy Court: Submit the completed forms to the appropriate bankruptcy court. There may be a filing fee.
5. Attend Required Hearings: Depending on the chapter, hearings may be scheduled where creditors and the court will review the bankruptcy petition.
6. Comply with Court Orders: Ensure that all deadlines are met and that the business complies with any orders issued by the court.

Conclusion

While it is possible for a business to file for bankruptcy without hiring an attorney, it is often not recommended, especially for more complex cases like Chapter 11. The risks of mistakes, delays, and missed opportunities can be significant, and a bankruptcy attorney can help businesses navigate these challenges effectively.

For businesses filing Chapter 7 or Chapter 11 bankruptcy, it is highly advisable to consult with an attorney to understand the process, protect assets, negotiate with creditors, and ensure a smooth filing. In the long run, the costs of hiring an attorney are often outweighed by the benefits of a successful bankruptcy filing, whether that involves a liquidation of assets or a reorganization of debts.