How a Small Business Can Benefit From a Chapter 13 Bankruptcy

by
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC



If you own a small business, you may be able to use a Chapter 13 bankruptcy to rearrange your debts and protect your small business at the same time

Here's How a Chapter 13 Bankruptcy Works

Under Chapter 13, you get to keep your assets. At the same time, you reorganize your debts and create a repayment plan that allows you to pay all or part of those debts. The repayment plan gives you three to five years to make payments to the bankruptcy trustee. He then takes the money and distributes it to your creditors according to your plan.

The amount you must pay depends on the type of debt you have, as well as your income and expenses. Usually, a higher-income person will need to pay more than a person with a low income. However, you must pay off your priority debts -- such as certain taxes and spousal support -- regardless of your income. At the end of your repayment plan, any non-priority unsecured debts, such as credit cards, will be discharged. After your discharge, the creditor cannot pursue you to pay the debt.

How Small Businesses Can Benefit From a Chapter 13 Bankruptcy

If your business is a sole proprietorship -- rather than a corporation or limited liability company -- then your business can file a Chapter 13 bankruptcy. Sole proprietorships are not considered legal entities.

In your Chapter 13 bankruptcy you can include all of your business debts because you, as the sole owner, are personally liable for those debts. (Certain types of partnerships can also qualify under Chapter 13.)

And even in cases where your business is a corporate entity, you may still include business debts if you cosigned or personally guaranteed those debts. At the time of the discharge, your personal obligation to pay those debts is extinguished; however, the creditor can still pursue your business's assets.

You May Benefit From Cram-Down Secured Loans

In your Chapter 13 repayment plan, the trustee may allow you to reduce the balance of some debts to the actual value of the property. These could include car and equipment loans. By reducing the balance of the debts in your plan, you also reduce the amount of your monthly payment.

You Keep Your Business's Assets

In a Chapter 13 bankruptcy, you will be able to keep your business assets while you rearrange and pay off your creditors. (In a Chapter 7 bankruptcy, the trustee sells your assets to pay off your debts.) By keeping your business assets, you can keep your business running and earning income.

If you have an Illinois business in trouble and have questions about sole proprietorship bankruptcy, bankruptcy for limited partnerships, corporation and limited liability company bankruptcy, or other strategies to reduce company debt and save your small business, please give me a call. My Chicago law practice, the Fonfrias Law Group, specializes in personal and business bankruptcy, debt management and restructuring, credit repair and more. As a Chicago bankruptcy and financial rescue lawyer, I can help you find the right solution to your money problems. Please call or email today; 312-969-0730 or rich@chicagomoneylawyer.com.