If you are the owner of a business, your finances are probably closely tied with the success of your business. When your entity struggles financially, you feel the stress in your personal finances as well.
Most small business owners have completely invested their time, effort and money into the venture. In fact, most “mom and pop shops” received their funding through loans, personal guarantees and credit card debt. In extreme cases, the owner takes out a loan from his/her 401k or other retirement account. Regardless, if your personal finances are closely tied to business debt, it is important to confer with us before you decide what type of bankruptcy to file.
How your small business is formed or incorporated impacts whether you should file a personal bankruptcy, a business bankruptcy, or both. Assuming your business is a separate legal entity (such as a limited liability company or corporation), your options for filing a personal bankruptcy to eliminate business-related debt are:
Chapter 7. If you do not have sufficient income to repay a portion of what is owed to your creditors and you pass the means test, the Chapter 7 process may allow you to discharge or eliminate a significant amount of debt, including credit card debt and the personal guaranties you signed to support the business loans. If the majority of your debts are business-related, you can file Chapter 7 without having to pass the means test.
Chapter 11. An individual Chapter 11 allows you to reorganize your debt. An individual Chapter 11 is typically used if you are unable to pass the Chapter 7 means test or your debts exceed the Chapter 13 debt limits. The Chapter 11 process allows you to handle complex financial matters and a large amount of debt.
Chapter 13. A Chapter 13 allows you to restructure your debt under a plan that sets forth how you intend to pay your creditors over a term of three or five years. You make monthly payments to the Chapter 13 trustee who distributes payments to the creditors according to the terms of the plan.
Please keep in mind that every case is different. If you own a business, have questions about filing a personal bankruptcy, and would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 932-5377.