Raleigh Bankruptcy Attorney for Commercial Loan Defaults

If you default on a commercial loan and don’t have the funds to pay back the money you owe, contact Bradford Law Offices, PLLC to learn about your available options. Filing for bankruptcy could help you pay off your debt while protecting your business from lawsuits and other collection actions.

Many people don’t have the capital to run their businesses. They might turn to a commercial loan to secure real estate, afford payroll, and fund a range of other expenses necessary to operate. Whether you borrow from a bank or loan company, you agree to make monthly payments over a specific period until you pay off what you owe. However, if you miss a payment, your loan could go into default. If you continue to miss the required payments, the lender could take legal action against you.

At Bradford Law Offices, PLLC, we understand the financial strain you might face. Business owners can find themselves in situations where they can’t afford to pay off their debt. Commercial loans are meant to ease the burden of running a business but could lead to financial hardships. You might be able to file for bankruptcy to protect your assets and give you time to create a plan for paying back your loan.

Call the Raleigh business bankruptcy attorney of Bradford Law Offices, PLLC at (919) 758-8879 today for your confidential consultation and learn more about how we can help.

Common Types of Commercial Loans

Business owners can apply for the primary types of commercial loans below. Each has different requirements and serves a range of purposes.

  • Commercial real estate loan – You can use a commercial real estate loan to buy property for your business or as an investment. Multiple types of commercial real estate loans are available, such as blanket loans and permanent loans.
  • Business line of credit – When you take out a line of credit for your business, it acts similarly to a credit card. You qualify for a maximum amount after applying. Instead of receiving a lump-sum payment, you can withdraw funds from your line of credit when you need them for business-related expenses.
  • Equipment financing – You might need specific equipment to operate your business. If you can’t cover the cost upfront, you can finance it with a loan and make smaller payments over time.
  • Term loan – You can use a business term loan for various expenses necessary to your business. This type of loan allows for a flexible repayment schedule, typically between one and five years.
  • Commercial construction loan – If you need to design and build a new structure for your commercial property, you can apply for a commercial construction loan. This loan covers expenses related to investment properties, office spaces, business centers, and other real estate you want to build on for your company.
  • Commercial auto loan – Many businesses depend on motor vehicles to transport products, get them to client meetings, and perform other job-related tasks. With a commercial auto loan, you can finance the vehicles necessary to provide your service or product.
  • SBA loan – Whether you want to start a new business or expand your current company, you can take out an SBA loan to finance the necessary expenses. Multiple types of SBA loans are available, depending on your needs.
  • Bridge loan – Bridge loans are beneficial if you need immediate cash flow to meet financial obligations you can’t afford. They help bridge the gap between the funds your business needs right now and longer-term financing solutions.
  • Inventory financing – Some companies need to buy certain products upfront they won’t actually sell until later. For example, a fashion designer needs materials for their clothes even though their clothes won’t hit the market immediately. You can cover costs like this with inventory financing.

Risks of Loans with a Personal Guarantee

Many commercial loans come with a personal guarantee. When you sign a personal guarantee for a loan, you assume personal responsibility for the credit your business receives. If you can’t make the agreed-upon payments to the lender, they could come after you for the balance you owe.

Creditors could take action against you and garnish funds, such as:

  • Tax refund
  • Social Security benefits
  • Wages
  • Payments from customers, vendors, and other parties
  • Retirement accounts

A creditor might also seize your property to offset the debt you owe. For example, if you financed equipment for your business, the creditor could repossess the equipment from you.

Business Bankruptcy Options in Raleigh

You don’t default on a commercial loan by missing one payment. Many lenders provide a grace period, giving their borrowers time to pay what they owe and might charge penalties. If you know you’re going to be late on your commercial loan payment, you should contact the lender immediately.

Unfortunately, there likely isn’t much you can do if you continue missing your monthly payments. The loan can go into default, and your only solution might be to file for bankruptcy. Three main types are available to business owners.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a type of bankruptcy that is available to businesses that are set up as sole practitioners. In this type of bankruptcy, you can reorganize your debt. When you file, you can submit a proposal for a repayment plan to the bankruptcy court and creditor. If they agree to your plan, you can make monthly payments until you pay off what you owe instead of paying the total amount upfront.

Repayment plans under Chapter 13 bankruptcy can last from three to five years. The terms of your agreement will depend on your current monthly income and whether it’s higher or lower than the state median income.

One of the many advantages of Chapter 13 is the automatic stay after filing. That means creditors can’t pursue any sort of collection action against you. They can no longer call you about your debt, file a lawsuit, or garnish your wages. Additionally, you can continue to operate your business while going through the bankruptcy process.

Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, you must liquidate your assets to offset the debt you owe the lender. This type of bankruptcy is called liquidation bankruptcy. It is most beneficial to business owners who plan to terminate operations.

Many companies need specific assets to provide services and products to their customers. However, if you liquidate those assets, you can’t resume normal operations. Your only other option is to shut down your business. It’s critical to understand how Chapter 7 bankruptcy works and determine whether you’re willing to close the doors to your company before filing.

Qualifying for Chapter 7 requires passing the means test. This test compares your total amount of debt to your current income. If your income exceeds the debt you owe the lender, the bankruptcy court will likely dismiss your case. However, if your debt is higher than your income, you might be eligible for Chapter 7.

When you file for Chapter 7 bankruptcy, it triggers an automatic stay like Chapter 13. Collection actions cease, and creditors can’t recover your debt through repossession, wage garnishment, or other methods.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is similar to Chapter 13 because it’s another type of reorganization bankruptcy, but this type is specifically for businesses. Your repayment plan will give you between two and five years to pay off your debt to the lender.

Filing for Chapter 11 also prevents creditors from coming after you for the money you owe them. You don’t have to stop business operations while finding a way to pay back the money you owe. If the court permits, you can continue running your business. However, you must meet the terms of your repayment plan. If you miss any payments, the court could dismiss your case, and the creditor could pursue action to recover the total amount of your debt.

Steps You Should Follow to File for Bankruptcy

Whether you want to file for Chapter 13, 7, or 11 bankruptcy, you must follow multiple steps. Most of the steps involved in each type of bankruptcy are the same, with a few slight differences. The steps for filing for bankruptcy are below.

  • Means test – If you’re filing for Chapter 7 bankruptcy, take the means test to determine your eligibility.
  • Review your finances – Create a list of your assets, liabilities, income, and expenditures. You should also list all creditors and the amount of money you owe each one.
  • File – File your bankruptcy petition with the bankruptcy court. You should include a statement of financial affairs and supporting documents to show you qualify for bankruptcy.
  • Repayment plan – Provide the court with a copy of your proposed repayment plan if you file for Chapter 11 or 13 bankruptcy. The bankruptcy judge and your creditors will review it and approve or reject it.
  • Trustee – The court appoints a trustee to determine the assets they can liquidate to offset the debt under Chapter 7.
  • Tax documents – Provide your trustee with your most recent tax return or transcripts. You must also submit your tax return for each year your case is still open.

One of your first steps should be to hire an experienced bankruptcy lawyer in Raleigh, NC. Bradford Law Offices, PLLC has more than 25 years of experience handling business bankruptcy cases. We can represent you in your case and fight to protect your professional and financial future.

Contact Us

If you face a defaulted commercial loan and need assistance filing for bankruptcy, call Bradford Law Offices, PLLC today at (919) 758-8879. We can meet with you for a confidential consultation to review your case and determine which type of bankruptcy could best serve your needs.