Many business owners are struggling with too much debt and finding it hard to continue. Not all of these business owners are ready to give up; if they could renegotiate their debt payments, they could remain in business and work their way back.
For a Sole Proprietor
The owner is personally liable for the debts of the business if the business is a sole proprietorship. The owner can file for a personal bankruptcy under chapter 7 or chapter 13. Chapter 11 could possibly be a viable option.
For a Business Partner
If the business is classed as a partnership, discuss the situation with a corporate bankruptcy attorney.
For a Corporation or LLC
In a corporation or LLC, the business is responsible for the business debts. The business can liquidate under chapter 7 or reorganize under chapter 11, but cannot file for bankruptcy under chapter 13.
Chapter 7 – Liquidation
Chapter 7 bankruptcy allows the assets to be liquidated and the proceeds used to pay off creditors. Any remaining balances would be discharged.
Chapter 13 – Repayment Plan
Chapter 13 allows the owner of the business with a steady income to establish a plan for repaying debt. The business owner and their corporate bankruptcy attorney will work with a court-appointed trustee and creditors on the details of the repayment plan. Once the plan has been approved by the court, the owner makes monthly payments over three to five years.
The business cannot have more than $1,149,525 in secured debt (such as secured bank loans) or $383,175 in unsecured debt (such as credit cards) in order to qualify for chapter 13.
Chapter 11 – Reorganization
Chapter 11 is more complicated and expensive than chapter 7 or chapter 13, so it is less often used by a small business. If the business has more debt than allowed for a chapter 13 or if an LLC owns the business, then chapter 11 could be the only possibility.
In a corporate chapter 11 bankruptcy, the business has 300 days to create an action plan; during the bankruptcy, a trustee will monitor the business. Payments to creditors must be made as specified in the plan.
Hogan & Associates, P.C. can help you make the best choice for your business and get you started on the road back to a better place. Contact Christopher A. Hogan about your business bankruptcy today.
