Small business owners often face difficult decisions, but perhaps one of the most challenging decisions is whether to file for bankruptcy. Even if you aren’t yet sure whether filing bankruptcy is appropriate for your situation, you can schedule a consultation with a bankruptcy lawyer. He or she will review your finances and provide legal guidance, such as whether Chapter 7 or Chapter 13 bankruptcy might be right for your small business.
Chapter 7 Bankruptcy
Bankruptcy laws allow both individuals and business entities to file Chapter 7 bankruptcy. If you are a sole proprietor, then filing for bankruptcy on behalf of yourself and your company is the same thing, since you and your company are legally the same entity. If your company is a separate legal entity such as a corporation, limited liability company (LLC), or partnership, then your bankruptcy attorney can file Chapter 7 on behalf of your company. However, doing so will not eliminate any personal liability for your business debts, which is why your attorney may recommend an additional filing as an individual. Chapter 7 bankruptcy is particularly ideal for sole proprietors because not only is personal liability eliminated, but exemptions can be used to preserve business assets. This means that the individual can continue to operate the business after filing bankruptcy. However, separate business entities filing Chapter 7 should be aware that exemptions cannot be used to preserve assets. This option is generally best for small business owners that plan to shut down the company.
Chapter 13 Bankruptcy
If you have a separate business entity, your company cannot file Chapter 13 bankruptcy. This type of bankruptcy is only intended for individuals, sole proprietors, and certain partnerships that are not legally considered to be separate entities. Chapter 13 bankruptcy involves the restructuring of debts for which you are personally liable. After the repayment plan is approved, you will make payments to your creditors for the next three to five years.
Since 1990, the bankruptcy attorneys at Cutler & Associates, Ltd. have been helping families and small businesses in the Chicago area. Our bankruptcy law firm provides compassionate legal representation and personalized client-centered service