If you’re a small business owner who is considering bankruptcy, you should explore your business law options before making a decision. There are several different bankruptcy chapters, and each has its advantages. However, business bankruptcy option may not be your best choice.
Bankruptcy Options For Small Business Owners
As the owner of a small business, the way your company is run can significantly impact your bankruptcy case. If you have a sole proprietorship or a partnership your business and you form one legal entity, and a business bankruptcy can put your credit standing and personal assets at risk. With those factors in mind, choose one of the options below.
- Chapter 11 is an option for large businesses with significant assets and debt, and it’s rarely chosen by sole proprietors. Chapter 11 is a re-organizational type of bankruptcy that allows a person to repay debt without affecting the business’ operations or assets. However, it is costly and complicated to file.
- Chapter 13 is a good choice for small business owners. There’s no forced sale of assets, but debtors need to prove that their income is sufficient to repay some debt. For the self-employed and for sole proprietors, documentation usually requires income tracking for six months before filing. Repayment plans can last up to five years.
- Chapter 7 is a choice for businesses and people who cannot afford to pay any of their debts. Those seeking Chapter 7 must prove that their income isn’t sufficient to repay part of the debt, and proof is typically accomplished through a means test. During Chapter 7, some or all of a business’ assets can be sold to repay creditors, but there are some exemptions. Forced liquidation of assets can make it difficult for a business to continue operations, and many businesses shut down entirely.
Seeking Bankruptcy Help
Deciding which type of bankruptcy is right for a business can be difficult, and business owners should consider hiring legal representation. A lawyer can help a client weigh legal options, and they can recommend a course of action based on their situation. A business law attorney with Legalphilly.com can help a business owner choose a bankruptcy chapter, and he or she will help with the filing process.