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Bankruptcy and Current Construction Projects

With the world going into years of financial problems, there is a chance that your construction company may face many of those problems. For most businesses in the construction industry, bankruptcy is a real possibility. Although the term “bankruptcy” commonly has a bad reputation, it’s actually in place to help you deal with the mounting costs and debt of your company when it becomes too much. In this article, an NCDOT defense lawyer in Charlotte discusses the different types of bankruptcy and how they affect current construction projects.


Related: Bankruptcy and the Construction Sector

Chapter 7

Chapter 7 bankruptcy is designed for those who have a large amount of unsecured debt and are unable to pay it according to their financial means. The government recognizes that many people and companies are struggling with the burdens of unsecured debt, and this is why they have provided options, such as debt settlement, in order to help these people in need. The government has also provided options, such as debt management plans and debt consolidation, in order to help homeowners who cannot continue making payments based on their current income.

Chapter 7 bankruptcy allows the debtor to sell off their remaining assets and properties to clear their name. Once this is completed, they will be required to distribute the remaining debts to their creditors. They are no longer responsible for these debts, and their assets will now belong to their new trustee. This is also the last chance for the debtor to settle their accounts with their creditors.

Chapter 11

Chapter 11 bankruptcy refers to the provision of the Bankruptcy Code, which is usually used to restructure a company as an ongoing concern under court supervision. Once filed, the company in Chapter 11 becomes a discharged creditor. This discharge gives the company the right to engage in trade but not deal with assets and makes the company liable for all debts that are covered by this discharge. A discharged creditor is entitled to the payment of his or her debt under normal circumstances, which means he or she cannot petition for garnishments.

Related: How to Secure Payment When There Is Bankruptcy on a Construction Project

Liquidation and Reorganization

Liquidation and reorganization can be used as alternatives to Chapter 11 bankruptcy. However, since liquidation eliminates all rights of the creditor to collect his or her debt, reorganization only increases the ability of a company to pay creditors. Reorganization can be achieved in different ways. Under most reorganization plans, a company can reorganize itself through a change in ownership (in case of a private reorganization). The ownership can either be transferred to a new lender who will assume management of the business or a new group of trustees who will reorganize the business as part of a general obligation bond. The plan may also include a provision allowing a company to make an initial payment of its debts in exchange for a commitment from the reorganizing trustee to take over management of the business in the event that the reorganizing trustee is unable to carry out the reorganization plan.

Both liquidation and reorganization allow small businesses to restructure their debts and obtain a fresh start with a new outlook and fresh funds. This presents small businesses with a brighter financial future and the opportunity to develop new markets or pursue other growth strategies. It also allows small businesses a chance to return to profitability and avoid the risk of bankruptcy.

Automatic Stay

An automatic stay is a kind of legal protection for borrowers available in both Chapter 7 and Chapter 13 debt claims. When a borrower files for bankruptcy protection, an automatic stay forbids creditors from trying to collect debts, collect judgments, or even repossess the property belonging to the borrower. This prevents the collection of past due debts by allowing the borrowers to discharge their debts in exchange for full repayment of any debts still outstanding after a specific period of time called an “automatic stay.”

When the automatic stay is released, creditors cannot garnish wages, take back bank accounts, sell assets, seize vehicles, retain non-exempt public records, or take possession of homes and properties. If a court order is required in connection with certain debtors, a temporary restraining order may be filed in the U.S. Circuit Court. The presence of this protective measure is extremely important in situations where the rights of debtors and creditors are abused, such as in bankruptcy proceedings, where the rights of the debtors may be infringed upon without just cause.

Dealing with bankruptcy alone is ill-advised since it can be a lengthy and difficult process and have lasting ramifications for your construction business and its ability to complete future projects. Instead, we advise working with an NCDOT verified claim attorney in Charlotte to make it through the bankruptcy process. If you have questions about the bankruptcy process, contact an NCDOT contracts attorney from Charlotte from Cotney Construction Law.

If you would like to speak with an NCDOT defense lawyer in Charlotte, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.