There are several options when determining which type of bankruptcy claim is right for a particular situation. In the event that it becomes necessary for a small business to file for bankruptcy there are three options, Chapter 7, Chapter 11 and Chapter 13 (on a personal level). Depending on the financial and legal circumstances surrounding the business your ability to file a claim may be limited a particular chapter that meets your needs. It is necessary when filing bankruptcy, for a small business, to seek legal advice and assistance with an attorney with experience in bankruptcy and the legal financial sector.

Chapter 7 Bankruptcy
A chapter 7 bankruptcy is a good option for small business owners who do not wish to restructure their financial obligations and still wish to continue pursuing business opportunities. However, a chapter 7 bankruptcy is not available in all circumstances and is generally pursued by business that are categorized as partnerships, limited liability companies (LLC), or corporations. There are caps that may apply on the basis on income and the internal operational structure of the small business. The highlighted benefits of a Chapter 7 business bankruptcy are as follows:

  • No restructure necessary
  • A trustee is appointed
  • Assets are sold but only pay for debt to the extent of funds available
  • Ability to file is primarily dependent on level of income

Chapter 11 Business Bankruptcy
Chapter 11 Bankruptcy is not readily advisable in cases of smaller businesses with small margins of income. The reason chapter 11 bankruptcy is typically avoided in smaller cases is due to the fact that the legal process surrounding the bankruptcy are typically complex making the process more expensive and time consuming. Chapter 11 bankruptcy is the only option for small businesses that are focused on restructuring debts and continuing operations under a partnership, LLC, or corporations. Although this bankruptcy filing is usually not used in cases of sole proprietorship they may be used for individual business debtors that want to reorganized debts but owe too much debt to meet the legal requirements for filing a chapter 13 bankruptcy.

Your business may be eligible for a Chapter 11 Business Bankruptcy if:

  • The owners of the business (you in most instances) want to restructure the business and continue business operations.
  • You have a small business in a partnership, LLC, or small corporation.
  • Don’t meet eligibility requirements to file chapter 13.
  • Have time and financial resources to maintain a chapter 11 bankruptcy.

Chapter 13 Bankruptcy
Only individuals may file a chapter 13 bankruptcy meaning that only small business credited as a sole proprietorship may apply. In other words businesses that are operated in partnerships, LLC’s, or Corporations may not file for Chapter 13 bankruptcy. A chapter 13 bankruptcy also places limitations on the amount of debt owed to qualify for the legal disclosure process. According to the current legal process one may only file for Chapter 13 bankruptcy so long as their debt is less than $383,175.00 in unsecured debts or less than $1,149,525.00 in secured debts.

Chapter 13 Bankruptcy for Small Business Owners (Personal Cases)
A personal Chapter 13 bankruptcy case may be a great alternative to a Chapter 11 case for those that are self employed, own their own businesses and need to restructure debts and assets as to remain in business.  If your business is not organized as a corporation, LLC, etc. – a Chapter 13 may be very beneficial to you.  The most notable limitations for filing a Chapter 13 are:

  • Restructuring opportunity for single business owners on a personal level only
  • Debt limitations- cannot file Chapter 13 if you owe more than $383,175.00 in unsecured debts or $1,149,525.00 in secured debts.
  • Only individuals (including business owners and the self employed) can file a Chapter 13.  Businesses cannot file Chapter 13 cases.
  • Regular income of some type is required by the filer to qualify for a Chapter 13.

Small Business Chapter 11 Business Bankruptcy Cases
In the event that Chapter 11 bankruptcy is advisable there are a certain number of specialized processes for small businesses that differ from the a typical Chapter 11 claim. These specialized provisions are used to expedite the process of the Chapter 11 bankruptcy all while reducing the likelihood of increasing restructuring and legal expenses. In order to qualify for these specialized provisions you must first meet the following criteria of a definable “small business debtor”:
“(1) The debtor is engaged in a business or other commercial activity, (2) the debtor does not owe more than $2,490,925.00 in total claims with the exclusion of obligations owed to other associates or family members.”
Other special provisions that are possible in small business Chapter 11 business bankruptcy cases include:

  • No creditors Committee – A bankruptcy court can rule that an appointment of a creditors committee is not necessary which can then reduce legal fees at the debtor’s expense for the unsecured creditors.
  • Additional Trustee Oversight – The United States Trustee office will oversee the bankruptcy claim for the department of justice and will use more oversight in the chapter 11 proceeding than in many other types of cases.
  • Additional Filing and Reporting Duties- Must attach legal/financial paperwork to the bankruptcy petition when filing for Chapter 11. These documents must include current prepared balance sheet, cash flow statement, federal tax return, and statement of operations.
  • Plan Deadline – In a chapter 11 small business bankruptcy cases you must file a chapter plan and the debtor has only 300 days to propose and attach the plan. This may be extended by the bankruptcy court rarely and only in the event the debtor can prove that a plan will be accessible within a reasonable amount of time.
  • Exclusive Period to Propose Plan – Chapter 11 plans filed by creditors provide for the liquidation of the debtors assets and business; however, the debtor has the exclusive right after filing bankruptcy to file a Chapter 11 plan within 120 days. In small business cases the right to exclusive planning is extended out to 180 days in order to litigate competing bankruptcy plans.
  • No Disclosure Statement – In small business cases the disclosure statement may be waived to expedite the reorganization process.

If you are interested in filing a bankruptcy to resolve your small business debt please contact us at 770-609-1247 today.  One of our experienced business bankruptcy attorneys at Coleman Legal Group, LLC will be available to discuss your business bankruptcy options. Our business bankruptcy attorneys at the Coleman Legal Group have experience in complex an simple cases – both personal and business.