Bankruptcy Options for Business Owners

: Chris Lee Law Firm

  Filed under: Bankruptcy

bankruptcyIndividuals and families aren’t the only ones seeking debt relief through a Dallas bankruptcy. With the United Stated economy still regaining its former strength, many small businesses are struggling with the weight of increased competition and higher costs. Over time, these stressors accumulate incredible debt and with limited consumer spending, a small business owner might decide it’s time for a fresh start.

Personal vs. Business Bankruptcy

For entrepreneurs who are registered as sole proprietors, the same bankruptcy options that apply to individuals are relevant. Sole proprietors can use both Chapter 7 or Chapter 13 to curb personal or business debts. However, for those who want to keep their business finances separate from their personal financial life, they might want to only consider filing for Chapter 7 or Chapter 11 instead.

Like a personal bankruptcy, Chapter 7 will relieve the business of its debts by liquidating assets. Unfortunately, this results in the dissolution of the business. For business owners who protected themselves through being a corporate shareholder or LLC owner, personal property won’t be affected. Sole proprietors are the only business owners who should be concerned about Chapter 7.

Chapter 11 for Business Owners

Similar to Chapter 13, Chapter 11 allows business owners to reorganize their debts and repay them over time. While the debtor may propose a repayment plan, it is likely that over time the creditor will have the final say. With Chapter 11 and Chapter 13 being so similar, most individuals opt for Chapter 13 when filing for a Texas bankruptcy.

The biggest difference for Chapter 11 for business owners is that they do not have to pass a “means test.” In other words, while individuals will have to prove that they cannot afford to pay back their debts for a Chapter 7 or Chapter 13 Texas bankruptcy, a business can simply file for Chapter 11. It does not need to prove that it is eligible. Businesses also have the option to void contracts with lenders if it would be mutually beneficial, whereas individuals cannot.

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