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Common Concerns & Questions About Bankruptcy

Using Chapter 13 for certain small businesses

| Dec 18, 2019 | Chapter 13 |

As our blog has discussed on previous occasions, business owners in Texas have several options should they run in to financial trouble. Businesses of significant sizes may be able to take advantage of a Chapter 11 filing, which is primarily designed so that troubled businesses are able to re-organize their affairs.

In other cases, such as where a business has no viable financial future, the more common Chapter 7 bankruptcy may be best. As a caveat, though, a Chapter 7 is simply a means by which a business can close its doors in an orderly fashion.

Moreover, business owners whose organizations fall into Chapter 7 bankruptcy may also have to file a personal bankruptcy to protect themselves from delinquent loans related to their business but which they personally guaranteed.

Another option for certain types of businesses, like sole proprietorships, is a Chapter 13 bankruptcy. A Chapter 13 filed for business reasons, in practice, works similarly to a personal Chapter 13 filing in that a debtor will list all his or her assets and debts and give a detailed accounting of his or her income and expenses. The debtor will also submit a repayment plan which the bankruptcy court must approve, although the plan need not call for the full repayment of every debt.

Aside from being a means of keeping a business afloat while repaying debts, another convenient thing about a Chapter 13 for business-related debt is that debtors may be able to propose a more favorable, and shorter, repayment plan, particularly if the business has not been profitable in recent months.

Those interested in filing a Chapter 13 for business purposes should consider speaking to a professional, to determine if this type of filing is right for them.