Many small business owners take on a venture to fulfill a lifelong dream or to carry on the tradition of a family-owned business. While some small businesses enjoy success, others are not as fortunate. The realization that a small business is failing is often a difficult pill to swallow, which makes the decision to close up shop and even file for bankruptcy a particularly hard one to make. However, it is important to keep in mind that filing for bankruptcy can be a positive choice. It can reduce stress, address financial concerns, provide peace of mind, and even allow for a fresh start.
Bankruptcy Options
When filing for bankruptcy as a small business, there are three options available as to what type of bankruptcy to file. A business’s structure will determine which type of bankruptcy for which it is eligible.
- Chapter 7 – If the business is a corporation, LLC, partnership, or sole proprietorship, it is likely eligible to file for Chapter 7 protection. In a sole proprietorship, the owner will also have to file for bankruptcy protection.
- Chapter 13 – If the business is a sole proprietorship, it is eligible to file for Chapter 13 protection, and the owner will have to file for bankruptcy as well.
- Chapter 11 – Businesses that are a corporation, LLC, partnership, or sole proprietorship, can file for Chapter 11 bankruptcy protection. Again, in the case of a sole proprietorship, the owner will also have to file for protection.
Beyond that, the specific type the business will choose to file will depend on the particular circumstances of the case, including a main focus on the cause of the business’s debt and financial problems. An experienced bankruptcy attorney will be able to advise a small business owner on which type of bankruptcy protection will best meet their needs.
- Chapter 7 – This option would be ideal for debtors who cannot afford or do not think it would be financially wise to restructure their debts to continue their business. A trustee would be appointed, and assets would be sold to pay creditors to the extent possible.
- Chapter 13 – This would be an option to include a reorganizing and restructuring of the business’s and business owner’s debts, subject to certain debt limits.
- Chapter 11 – This option would be available to those business owners who wish to reorganize, but whose debt limits may exceed those eligible under Chapter 13 bankruptcy.
Seeking Knowledgeable Legal Bankruptcy Assistance
In light of the complexities that can arise in bankruptcy cases involving small businesses, it is advisable to consult with an experienced bankruptcy attorney about your options. A skilled lawyer can listen to the facts of your particular case and guide you by choosing the bankruptcy option that is most beneficial to you. Contact a lawyer today to schedule a free and confidential consultation with a bankruptcy attorney in Memphis.
Thanks to Darrell Castle & Associates for their insight into bankruptcy law and options for business owners.