If you are a small business owner with a significant debt level, filing for bankruptcy can give you the opportunity to reorganize your debts, liquidate the company and wipe out your liabilities. Depending on your needs and your goals, this can be done by filing for either personal or business bankruptcy. In this article, you will learn more about your Chapter 7, 11, and 13 options.
What are My Choices?
There are pros and cons to Chapter 7, 11 and 13 bankruptcy proceedings, and the right option for you depends on the structure of your business and on your debts. We will explore your options below:
Business Chapter 7: If you have an LLC, partnership or corporation, you can file for Chapter 7 on your business’ behalf. Chapter 7 bankruptcy is used when a business is being liquidated or shut down; the business cannot claim exemptions or receive discharges. When filing occurs, the bankruptcy trustee sells the business’ assets and uses the proceeds to pay creditors. Chapter 7 is a viable option for small business owners who want to close up shop without dealing with creditors, but it does not eliminate personal obligations.
Personal Chapter 7: If you’re a sole proprietor you cannot file Chapter 7 on behalf of your business. All business debts and assets belong to you, and you must file for personal bankruptcy. However, when you do file, both business and personal debts can be wiped out, and you can use exemptions to safeguard business assets.
Chapter 13: This type of bankruptcy is for individuals only. However, as a sole proprietory, you are your business, and if you file Chapter 13, all the business’ debts are included. You’ll be able to keep property and reorganize debt. Other small business owners can discharge their personal liability for debts from the business.
Chapter 11: Both businesses and individuals can file, but it’s more complex than either chapter described above. With Chapter 11, you can formulate a repayment plan to continue operations while reorganizing debt. The repayment plan must be approved by creditors before confirmation; personal Chapter 11 is rare because Chapter 13 presents a better choice.
Bankruptcy provides debtors with an opportunity to reorganize and start anew, but the procedure can be complex.
If you are a business owner that needs assistance with filing, please call a Bankruptcy Attorney at Neff & Griffitn, P.C. in Tucson today.
