No business owner wants to admit that bankruptcy is the best way to resolve unmanageable debt, but for many, that decision ultimately must be made. That creates another decision: what bankruptcy is best for your small business?
The options available to small business owners depends upon on the structure of their company, how much debt they have, and whether they believe the business still has a future. There are business bankruptcy, but not all business owners will be able to choose from all three.
Chapter 7 bankruptcy – This is available to business owners who have registered as a sole proprietor. Partnerships and corporations cannot receive a discharge of debt in a Chapter 7 bankruptcy. In Chapter 7, the owner is released from any responsibility to pay the business’s debt. A sole proprietor can wipe out both business and personal debt in one bankruptcy. Most often, it’s used when the plan is to dissolve the business and liquidate its assets.
Chapter 11 bankruptcy – This is for owners who feel their business can rebound. Under Chapter 11, a business reorganizes under a court-appointed trustee. The company develops a plan of how it will pay creditors, who ultimately have a say in approving the plan. Be aware that Chapter 11 reorganization takes a long time (up to a year) to approve and may call for payments to creditors over 20 years.
Chapter 13 bankruptcy – Like Chapter 11, you create a repayment plan of up to five years in Chapter 13 bankruptcy and you retain your assets. It is an option for sole proprietors. You can protect all business assets and keep the business operating, while also catching up on personal expenses such as mortgage or car payments. You’re your personal liability for business debt is discharged in Chapter 13. The business will remain responsible for repaying the debt.
It is always wise to work with a knowledgeable bankruptcy and debt relief law firm that can review your unique situation and recommend the solution that is best suited to you.