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501c3 Bankrupcy

Corporate Law Discussions

501c3 Bankrupcy

Postby Gardner » Sat Sep 13, 2014 5:45 pm

My organization is considering bankruptcy or a merger. If we declare bankrupcy, can we reorganize without debt? Can we retain our name? thanks
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Joined: Sat Mar 22, 2014 8:48 am

501c3 Bankrupcy

Postby Allie » Wed Sep 17, 2014 9:54 am

I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations.  Your questions are about bankruptcy.  However, I will inform you that the provisions of the Bankruptcy Code(Chapter 11) that allow for reorganization apply not only to for-profits but to nonprofits.  Many 501(c)(3) organizations have reorganized in Bankruptcy and have kept their names.  But you appear to be referring to a situation where you want to have all debts forgiven and that is Chapter 7.  A Basic explanation is:

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For smaller companies, a Chapter 7 corporation bankruptcy usually means the company goes out of business, sells all assets and employees lose their jobs. Sometimes the company makes this choice based on hardship within the company(when there are debts to pay that far exceed what the company makes). Other times the company's creditors make the choice to file Chapter 7 corporation bankruptcy. In either event, the court immediately appoints a trustee and the process of selling the company’s assets begins.

When a larger company files Chapter 7 bankruptcy, the shareholders often just liquidate and sell pieces of the company, while the rest of it stays intact. Employees may or may not lose their jobs, depending on who buys the various parts of the company and what their plans are.

A Chapter 11 corporation bankruptcy is a little less cut and dry. In this type of bankruptcy, the company is “reorganized” and during the reorganization period, the court will excuse some debts while forcing the company to pay back others during the bankruptcy proceedings.

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The corporation's name may have value(good will) and, therefore, would be considered as other assets of the bankrupt company.

Another good article is at:http://tinyurl.com/4gmsbnk One group that addresses the issue of bankruptcy for nonprofit corporations is available at:http://goo.gl/qBe18(Chapter 11)http://goo.gl/nXYuf(Chapter 7).

The Law Firm of Jones, Day comments that, "Some states may not permit their non-profit corporations to seek bankruptcy protection. Instead, these states have enacted detailed receivership procedures to be carried out under the supervision of state courts. "http://pages.citebite.com/y4o6r1w2drij

Harvey Mechanic, Attorney at Law - [email protected]
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