If you are a small business owner who is struggling financially, filing bankruptcy might be your solution. There are various options for sole proprietors, depending on your particular situation.
CHAPTER 7
A sole proprietorship is not a separate legal entity, so if you file a personal Chapter 7 bankruptcy, you can wipe out both business and personal debts this way. If you have more business debt than personal debt, you likely will not need to worry about how much income you make, as you will not need to pass the Chapter 7 means test.
Generally, when a business files a Chapter 7 bankruptcy, the business must immediately close. Some exceptions to that rule are personal services businesses, such as a CPA or hair stylist. Those businesses can generally remain open, but will require a request to the Court to have the Trustee abandon the business, so it is no longer a part of your bankruptcy estate. In either case, you might be able to retain paid for equipment with available exemptions. You will also be able to walk away from leases or loans for equipment, as well as a lease for the real property.
If your business is a corporation in which you are the sole owner or you own with others, there is a high probability you were asked to sign a personal guarantee. In this circumstance, you might be best looking into filing a personal bankruptcy.
I will be able to assist you in deciding which course of action is in your best interest.
CHAPTER 13Only individuals can file Chapter 13 bankruptcy. This means that if you are a sole proprietor, you can file Chapter 13 to reorganize personal and business debts, but if you are a partner, or you own a corporation or limited liability company, you cannot file Chapter 13 on behalf of the business.
Chapter 13 bankruptcy is very similar to Chapter 11, but is only applicable to individuals who own small businesses with a few creditors. It is a simplified and less costly reorganization for small businesses that allows the business to remain open, as opposed to most Chapter 7 business cases. When you file for Chapter 13, you submit
a repayment plan that shows how you will repay your debts, usually over a period of three to five years.
I will be able to assist you in deciding which course of action is in your best interest.
