Can A Non-Profit File For Bankruptcy?
If you are running a non-profit company you may be interested in understanding whether or not you could file for bankruptcy. In a recent case filed in Wisconsin a non-profit company called UNISON filed for Chapter 7 bankruptcy claim. The company ran a senior center and worked with young families but it ran into financial problems after the CEO was convicted of embezzlement. As the non-profit only had just over $100,000 in assets but nearly $1 million in debt, they were able to take a financial position that helped them qualify for Chapter 7 bankruptcy.
Community and nonprofits will sometimes file for bankruptcy and should they choose to file for bankruptcy, this can help with the forgiveness of debts and the dissolution of the charity or non-profit. Nonprofits that file for bankruptcy still remain quite rare. Only 1% of all corporate bankruptcies are made up of nonprofits even though 30% of all corporations across the United States are registered as a non-profit.
What To Consider As a Non-Profit In Financial Difficulty
It’s not an easy decision to file for bankruptcy and corporations need to consider any potential option that’s available to them before they choose to use bankruptcy as an answer. There are many considerations that non-profit corporations have to consider for handling debts, reducing the number of debts that you are servicing as well as working to established payment plans with your creditors can help. Not every debt can be discharged in bankruptcy either. If it’s impossible for you to reduce the costs of servicing debts in a meaningful way, it could be possible to resolve a small portion of your debts so that you can get back on your feet.
Considering how you fell into financial difficulty can also help you decide whether or not bankruptcy is a good idea. If there is a temporary downturn in finances as a result of lower donation rates, or a recession, you may be able to recover. Working at a deal with your creditors to pay back larger loans during peak times could be a better way to manage your finances moving forward.
If the downturn that you are experiencing in donations seems to be permanent, you may want to seek government grants as an opportunity instead. Many nonprofits can use government grants in an effort to absorb some of their debts. If grants make up a substantial portion of your operating budget it may be wise to start seeking other opportunities for funding.
If you feel as though you are out of options and the donation rates do not seem to be improving, it could be time for you to start considering bankruptcy as an option for your non-profit.
Choosing Your Bankruptcy Option
If you want to continue running the non-profit that’s experiencing difficulty it’s likely that you have to file for Chapter 11 bankruptcy. This is a more complicated bankruptcy process that will give creditors a substantial amount of input on the debts that should be paid as well as the debts that will be discharged. The debtor or in your case, your company will have to maintain a level of transparency throughout the entire process of bankruptcy proceedings. You’ll have to be prompt with answers for your company and you will have to make sure you attend any of the meetings that are required on the part of your creditors as well.
Chapter 7 may also be an option for your non-profit company. If you don’t plan on running the organization after your bankruptcy, chapter 7 may be a wise option for you. Under Chapter 7 bankruptcy you can wipe out many types of your debts but you will likely be responsible for selling off assets that your company owns. Chapter 7 bankruptcy will have its fair share of complications especially if the non-profit owns real estate, vehicles, and other major assets. If these are assets that are in the name of your non-profit, they can all be sold in an effort to recoup your debts. The largest advantage of using a chapter 7 bankruptcy if you plan on dissolving the non-profit is you can forgive the debts from the company and walk away selling off many of the major assets to cover them.
If you are facing difficulty with a non-profit organization and you would like some advice on which type of bankruptcy may be suitable for the needs of your company, contact us today. As reputable bankruptcy attorneys, we can advise you on the right type of bankruptcy that will suit the needs of your company and make sure that you can find the best solution for your company to walk away.
We can carefully analyze your debts and identify the best option for a secure financial future. Contact us today for your consultation.