Chapter 13 Bankruptcy
If you are a small business owner who is struggling with debt, filing for bankruptcy might be your best option for a fresh start. Choosing the type of bankruptcy that works best for you will depend upon a number of factors, including how deeply you are in debt, the amount of income that you have, and whether you are looking to shut your business down or keep it running. Though Chapter 13 bankruptcy is only available to individuals, if your small business is a sole proprietorship, it is a viable option – especially if your goal is to reorganize your debt while continuing to operate and build your business.
Though small businesses that are organized as partnerships, corporations or LLCs are not eligible to file for Chapter 13 bankruptcy, if your business is a sole proprietorship you can take advantage of the rules that govern Chapter 13, protecting your business assets and either lowering your debt or extending the amount of time that you have available to pay them off, though in doing so you are required to include the value of any of your nonexempt assets.
It’s important to note that small business owners who are not sole proprietorships, but who are structured as partnerships, corporations or LLCs for which they have a personal liability for its debt, are able to file for Chapter 13 personally and then reorganize that debt as part of the same payment plan that they create to make their personal debts more manageable. By the same token, filing for Chapter 13 also has some disadvantages, including that it is a much more time-consuming process that still leaves you with a good percentage of your original debt, albeit with a longer period of time in which to pay it off. There’s also the fact that though you can hold onto your nonexempt assets, you have to pay their assessed value to your unsecured creditors, and this may end up reversing the impact of any reduction of debt that has been negotiated as part of the Chapter 13 arrangement. Depending upon the value of those assets, you may once again find yourself unable to pay, though this time it will be the plan amount that will be out of your reach. Most important of all, including your personal liability for the small business debts does not erase the debts that are associated with the business. Those will still need to be paid back under their original terms.
As you can see, determining the type of bankruptcy that is best for you as a small business owner is extremely complex. Contact our experienced bankruptcy attorney today for help identifying your best option.
