Legal Question in Bankruptcy in Texas

I have a Franchise business in the red. I have a lease agreement for store space property and a separate one for equipment both in the name of my S Corporation. I do not owe anybody else any monies except for Property Taxes that will be due at the end of the year.

What are my options of closing the business? Corporate Bankruptcy, or simply closing the store and make settlements with the property and equipment lease holders.

Asked on 9/24/09, 11:44 am

2 Answers from Attorneys

Rustin Polk

It is unlikely that you need a business bankruptcy. With only a few exceptions, it makes more sense to just close it down, turn the leased assets back to the leasing company, and walk away.

HOWEVER-- all of the small business situations I have seen like yours have personal guarantees on the retail space, the equipment leases, and on most of the supplier agreements. So whether you file a business bankruptcy or just walk away, they come after you personally.

That's where bankruptcy comes in. If you personally file, it gets rid of all your personal obligation on the business debts. That lets you get a fresh start and move on to the next project, instead of getting buried by the business failure.

It's a little counter-intuitive to think that when you have a business problem, you need a personal bankruptcy but not a business bankruptcy. But that's the way it works in a small-biz situation like yours.

Rustin Polk

Dallas Bankruptcy Lawyer


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Answered on 9/29/09, 1:12 pm
Kevin B. Murphy Franchise Foundations, APC

I agree with Rustin's answer, and only add a comment about your franchise agreement. This was probably signed by your individually, or guaranteed by you if entered into by a new entity you formed. So you need to consider the consequences of provisions, like liquidated damages or balloon payments of royalty obligations if you terminate, etc.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

San Francisco Franchise Attorney

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Answered on 11/26/09, 10:33 am

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