If your business is struggling to make payroll, pay vendors, or just find it difficult to purchase inventory or keep the lights on from month to month then you may want to consider business bankruptcy.
Business bankruptcy is often an option available to business owners who are feeling the strains of financial distress.
Here are just a few ways that it can help:
- If lowering your monthly debt burden would help keep your company afloat, restructuring business debt under Chapter 11 or your personal debt under Chapter 13 might be the answer.
- If your business is closing or already closed, a “straight” or “liquidation” Chapter 7 bankruptcy for yourself or your business could streamline the winddown process or relieve you of liability associated with personal guarantees.
In this article, we are going to focus primarily on the benefits of restructuring business and personal debt both through payment plans using Chapters 11 and 13.
Benefits of Reorganization for Small Business Owners
Both chapters 11 and 13 of the bankruptcy codes allow for debtors to propose a plan to restructure their finances, for their company to stay in business. If a business qualifies, a Chapter 11 or a personal Chapter 13 (with limitations) plan can:
- allow you to retain property needed to operate your business
- give you time to sell assets you don’t need or can’t afford to keep
- modify payment terms on secured debts (like real property mortgages or equipment loans), and
- discharge (eliminate) obligations you can’t pay over the plan term (in Chapter 11 only).
Even though a business can’t technically file Chapter 13 (except for sole proprietors). That doesn’t mean a business cant benefit from an owner filing for Chapter 13 because it can free up cash, which is why some small business owners choose Chapter 13 over Chapter 11.
By contrast, Chapter 11 usually provides more flexibility for the business itself, but it comes with higher costs and takes too much time to be a realistic option for most business owners.
Fortunately, business owners now have another option that works a lot like Chapter 13 bankruptcy called “Chapter 11, Subchapter V.”
A lot of businesses in need of reorganization have already turned to this modified Chapter 11 specially designed for small business filers.
It’s a simplified reorganization that doesn’t involve a creditors’ committee and disclosure statements, and the bankruptcy judge can confirm a plan without creditor consensus. Small businesses with $3,024,725 or less of debt are eligible. (Amount applies to cases filed between April 1, 2022, and March 31, 2025.)
Contact Devon Barclay, PC
If you are a business owner looking for financial or debt relief. We encourage you to contact us for a free consultation. You can do so by filling out the form below or by simply calling us at 720-515-9887.
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