Raleigh Bankruptcy Lawyer for Working Capital Loan Defaults

If you face working capital loan debt and can’t afford to pay the lender what you owe, contact Bradford Law Offices, PLLC immediately. We can review your case and determine whether filing for bankruptcy could resolve your debt. You might be able to work out a repayment plan or liquidate your assets to satisfy your past-due balance.

Working capital loans benefit businesses that need help financing their everyday expenses. You can cover your short-term operational needs by taking out a working capital loan to pay rent, payroll, and other necessary costs. However, if you fail to meet the terms, your loan could default. The lender could come after you for the payments and penalties you haven’t paid by filing a lawsuit or taking another type of legal action.

Many companies don’t have the money they need to pay for daily expenses. A working capital loan could fund your operational costs when you need immediate cash flow. Although loans are helpful to business owners, some fall behind on their monthly payments. The account could go to collections, which could negatively affect the company.

At Bradford Law Offices, PLLC, we understand the burden of facing substantial debt. You worry about the future of your business and whether you will ever pay back the total amount you owe to the lender. Bankruptcy might be the most effective option available to you. If you file, you could stop collection action from your creditors and have time to create a strategy to resolve your debt. Our legal team is ready to represent you in your bankruptcy case and try to reach a favorable outcome.

For a confidential consultation with an experienced and trusted Raleigh business bankruptcy lawyer, call Bradford Law Offices, PLLC today at (919) 758-8879.

How a Working Capital Loan Works

Working capital refers to the amount of cash a company has on hand. Your business has working capital if its assets exceed its liabilities. However, many small business owners experience cash flow problems, especially when they’re in the beginning stages of operations.

Applying for a working capital loan can provide you with the working capital you need to pay for the necessary expenses to operate your business in the short term. You can use the funds you receive to pay for immediate costs, such as inventory, payroll, and rent. However, due to high interest rates, working capital loans are not beneficial for financing long-term expenses, such as business equipment and real estate.

You can apply for a working capital loan with a lender or your bank. The lender best for your business will depend on eligibility requirements and the timeframe you need to access the capital. You should explore the available options with Bradford Law Offices, PLLC to ensure you choose the right one.

Risks of a Working Capital Loan Backed by a Personal Guarantee

Some lenders offer working capital loans with a personal guarantee. A personal guarantee is a promise made by the borrower to assume personal responsibility for the debt if the business can’t pay. If you fall behind on payments and default on your working capital loan, the lender could pursue legal action.

Creditors often garnish a person’s funds to satisfy the debt owed by the business owner. They might garnish funds, such as:

  • Wages
  • Tax refund payments
  • Social Security benefits
  • Retirement accounts
  • Payments made to the business by vendors, customers, and other parties

A collection agency could also file a lawsuit against you to recover the money they need to satisfy your debt. If you lose the lawsuit, the judge could order you to pay the total amount you owe for the loan and interest, plus penalties and the creditor’s legal fees.

Personal guarantees can also put your property at risk. Creditors could seize your vehicle or another personal asset to offset your past-due payments.

Understanding the Difference Between Delinquency and Default

Typically, loans don’t default after one or two missed payments. The account becomes delinquent. If you missed a payment or know you can’t make a scheduled payment in the future, you should contact the lender immediately. They might offer a grace period that allows late payment without incurring any penalties. Some lenders will charge a late fee but still allow you to pay without defaulting on the loan.

If you don’t reach out to the lender or attempt to pay your past-due balance, your loan will likely default. The lender will mark you as unable or unwilling to pay the money you borrowed. The default timeframe depends on the terms of the loan agreement. Some lenders wait a few months, giving debtors time to make up for the missed payments and get back on track, but some lenders don’t. If you default on a working capital loan, you might need to file for bankruptcy.

Filing for Bankruptcy for Working Capital Loan Debt

As a business owner, you might not have the money necessary to make regular payments on your working capital loan. The loan could default, leaving you with limited options to pay off your debt to the lender. When you face working capital loan debt, you might choose from any bankruptcy option below.

Chapter 11 Bankruptcy

Filing for Chapter 11 bankruptcy is a way to reorganize your debt. You can create a repayment plan to submit to your creditors, including the working capital lender, and bankruptcy court. Instead of paying the total balance you owe upfront, you can make smaller monthly payments based on the plan’s terms. Chapter 11 bankruptcy allows terms between two and five years.

An automatic stay occurs once you file for Chapter 11 bankruptcy in bankruptcy court. This prevents creditors from pursuing action against you for your defaulted loan. During this period, the court will suspend all judgments, foreclosures, repossession, and claims pursued by creditors. It also prohibits collection agencies from contacting you regarding your debt. That includes phone calls, letters, emails, and other forms of communication.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is another type of bankruptcy you can use to reorganize your debt if you are a business that operates as a sole proprietorship. When you file your petition, you must propose a repayment plan to the bankruptcy court and your creditors. These plans come with terms lasting anywhere from three to five years. The payment term available will depend on your income and whether it falls above or below the median income in the state you file.

Like Chapter 11, filing for Chapter 13 bankruptcy issues an automatic stay. It goes into effect immediately after you file your petition. Creditors are not allowed to garnish your wages, file lawsuits, repossess your property, or take any other type of collection action against you during the automatic stay. You can also resume everyday operations during your ongoing case.

Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy is an excellent option if you plan to terminate your business. This type of bankruptcy is known as liquidation bankruptcy because it requires liquidating a company’s assets. A court-appointed trustee will review your assets to determine what they can sell to satisfy your debt to the lender.

You should only seek this option if you have come to terms with closing your business. Since many small business owners depend on their assets, such as office equipment, motor vehicles, and real estate, to keep the business going, selling them will prevent them from continuing everyday operations.

The benefit of an automatic stay is available during Chapter 7 bankruptcy, as it is in Chapters 11 and 13. It occurs once you file your petition in bankruptcy court. However, you must qualify for this type of bankruptcy before filing. The “means test” determines a business owner’s qualifications based on income and debt. If your income is higher than your total debt, you likely won’t be eligible. However, if your debt exceeds your income, you could proceed with Chapter 7 bankruptcy.

Filing for Bankruptcy in North Carolina

You must follow the steps below to file for business bankruptcy. Most steps are the same regardless of the type of bankruptcy you choose, although some differ depending on whether you file for Chapter 7, 11, or 13.

  • Means test – You must review your debt and income to determine if you’re eligible for Chapter 7 bankruptcy.
  • Create a financial statement – Review your finances and create a financial statement to submit to the court. You must also include a list of your assets, liabilities, expenditures, and income. Write a list of every creditor and the total amount of money you owe to each one.
  • File for bankruptcy – File your bankruptcy petition with the appropriate court. Provide your financial statement and the necessary documentation to prove you qualify for bankruptcy.
  • Repayment plan – Submit a repayment plan if you file for Chapter 13 or 11 bankruptcy. The court and your creditors/lenders will review it and advise whether they accept or reject it.
  • Trustee – The court will appoint a trustee to oversee your case. If you file for Chapter 7, the trustee will determine the assets they can sell to offset your debt.
  • Provide tax documents – Submit copies of your most recent tax return to the trustee. You should also provide them with your annual tax returns during your pending case.

It’s vital to contact Bradford Law Offices, PLLC before beginning the bankruptcy process. Facing legal proceedings alone can be overwhelming. You should not have to go through each step without an experienced Raleigh bankruptcy lawyer by your side.

Contact Us

With over 25 years of experience handling bankruptcy cases, you can count on Bradford Law Offices, PLLC to fight for you. We believe in representing business owners and guiding them towards a more financially secure future. Let us provide the legal services and support you need to get through this stressful experience.

If you face working capital loan debt or legal action from a lender, call Bradford Law Offices, PLLC at (919) 758-8879 right now for your confidential consultation.