Unfortunately as a business, you can’t file for protection under Chapter 13 bankruptcy unless you’re a sole proprietor who’s worried about losing your property. In this case, you’ll want a lawyer on your side who’s helped other small businesses analyze their options for bankruptcy. They can help you determine if a Chapter 7 liquidation is appropriate for you or if you should be pursuing a Chapter 13 instead.
It’s important to understand who a sole proprietor is. According to the law, they’re someone who’s running a business in their name and with their Social Security number. In other words, there isn’t a legal distinction between the person and the business that they own. Instead, they hold business assets in their personal name and they’re also personally responsible for any debts the business incurs. For instance, someone who works as a freelance writer is a sole proprietor.
You should know that not every small business is operated as a sole proprietor. You could also be organized as an S Corp, a partnership, or a limited liability company (LLC). If you’re not a sole proprietor you should consider filing for a Chapter 11 bankruptcy.
Non-Exempt Business Assets
There’s a huge drawback to having a Chapter 7 liquidation as a sole proprietor. This is because you could lose your assets. For instance, if you can’t exempt your assets (e.g. car, investments, vacation property) the trustee could sell them even if you’re only trying to eliminate business debt. This is because when you’re a sole proprietor there isn’t any distinction between you and your business.
A Chapter 13 bankruptcy can help you here. This is because you won’t lose any non-exempt property. Instead, for a period of up to 5 years, you’ll be required to pay your creditors your disposable income.
There are some drawbacks to filing a Chapter 13 bankruptcy. The main one being its duration. Three to 5 years is a long time and your case will be dismissed if you don’t stick with the plan.
With a Chapter 13 bankruptcy, your debtors can reduce how much of the principal you own on certain debts. For instance, if you owe $14,000 on a car that’s only worth $10,000 you can use a “cramdown” to reduce the amount you owe. Remember that when you’re a sole proprietor there’s no distinction between your personal and business debts. This is important because you can use a cramdown to reduce the amount of money you owe on non-business assets too. You should know that this isn’t available on your mortgage but it is available for your other property – including your investment properties. To understand how to use this to your advantage you’ll want to speak with an attorney.
Getting the Help You Need
When you’re considering filing for a Chapter 13 bankruptcy you’ll want to have the expertise of a good lawyer on your side. If you live in Tampa, FL, you should take time to schedule an appointment to talk to Weller Legal Group.
Picture Credit: Pixabay