There are multiple different types of bankruptcy available. Individuals filing for bankruptcy typically choose between Chapter 7 and Chapter 13 proceedings. Business owners may have more options.
Chapter 12 bankruptcy is available to agricultural professionals and professional fishermen. Chapter 11 bankruptcy can help insolvent businesses restructure. Chapter 7 bankruptcy can help when a company fails.
Small business owners and self-employed professionals who run their own practices may also want to consider a Chapter 13 bankruptcy. Provided that they hold the business as a sole proprietorship, they can typically address their personal and business debts in a Chapter 13 filing.
Chapter 13 is primarily for people
Unlike Chapter 7 bankruptcy, which is available to both commercial entities and individuals, Chapter 13 bankruptcy is effectively a form of personal bankruptcy. Business owners who have debts in their own names and financial obligations for their businesses may want to contemplate a Chapter 13 filing as an individual.
During a Chapter 13 bankruptcy, business owners negotiate a repayment plan by meeting with creditor representatives and a court-appointed bankruptcy trustee. They can reduce how much they commit to payments every month while avoiding aggressive debt collection efforts.
It may be possible to balance a household budget and a business budget to ensure that the filer can meet their minimum financial obligations every month during their repayment plan. They must then make between three and five years of structured payments. Some of the remaining debts that they owe may be eligible for discharge at the end of that process.
Chapter 13 bankruptcy can help protect small business owners and self-employed professionals from aggressive collection efforts. The process may help them protect their property and keep their business afloat. Reviewing different types of bankruptcy can help small business owners regain control over their finances and protect their organizations.