Bankruptcy Options for Small Business

If you own a small business, bankruptcy may help you.

What Are the Options in Bankruptcy for a Small Business?

Options are determined by how the business is set up (Corporation, sole proprietorship, LLC).

Bankruptcy options for controlling business debt

1. Closing the business and starting fresh with a new smaller, more streamlined operation.
2. Reorganizing the business and restructuring debt with Chapter 13 bankruptcy or Chapter 11 bankruptcy.
3. Closing the business and getting forgiveness of personal guaranties with Chapter 7 bankruptcy.

Types of bankruptcy available

1. Chapter 7 bankruptcy – Best option if you are closing your business. If the majority of your debt is business debt, you are exempt from the means test.
2. Chapter 13 bankruptcy – Affordable debt reorganization if you have a sole proprietorship and want to stay in business. Corporations and LLC’s can’t file Chapter 13 bankruptcy.
3. Small Business Act of 2019 – if you can’t qualify for the cheaper Chapter 13 bankruptcy, this may be an option. For a limited period under the new Coronavirus Act, this type of bankruptcy is available to individuals as well.
4. Chapter 11 bankruptcy
5. Chapter 12 bankruptcy – debt reorganization for farmers and fishermen.

Additional reading

Common Causes of Small Business Failure

Common Myths About Small Business Bankruptcy

We offer a free initial consultation for small businesses. You should consider requesting a consult when you believe bankruptcy is a real possibility. With business cases, you may need to do some extensive planning before filing. This can take time.