For a small business owner, a bankruptcy can be a heartbreaking end of years of work and effort, or a chance to reorganize and get back on a firm financial footing. Either way, it’s a way to discharge your debts and protect your personal assets as well as those of the business. It can be hard decision, but it one worthy of consideration when you can’t find another way to get on top of your debts.
Q: What bankruptcy options are open to a small business owner?
A: A small business owner can file Chapter 7, Chapter 11, or Chapter 13, and a family owned farm or fishing concern may file as Chapter 12.
Q: How do I know which to file under?
A: Well aside from the obvious restrictions on filing as a Chapter 12, there are some differences between Chapter 7, 11, and 13.
- Chapter 7 is also called liquidation for sole proprietorships, partnerships, and other corporate forms. With this filing, the business acknowledges that its debts exceed its ability to repay. The filing for small business is subject to the same means test as for individuals.
- Chapter 11 is reserved for the reorganization of partnership or other corporate structure that is not a sole proprietorship.
- Chapter 13 is reserved for individuals who can pay down their debts of their sole proprietorship or LLC over time.
Q: How long does it take to file for bankruptcy?
A: Timelines can vary. It doesn’t take long at all to prepare the actual filing, but you should be prepared to take four to six months for a Chapter 7 to be filed and discharged, subject to how busy the court is, and how well prepared the filing was. You might be asked to provide more information to the trustee, or have a creditor file a dispute and these things will add time to your case. Chapter 11 and 13 can take from three to five years from filing to discharge after reorganization.
Q: Are there any debts that I’ll still have to pay after bankruptcy?
A: Bankruptcy does not discharge income tax debts or tax liens, court ordered alimony or child support, and most instances of student loans. You will also still be on the hook for debts resulting from personal injury or property damage, and those resulting from driving under the influence. You are also liable for any debts incurred after the filing and for those debts fraudulently incurred when you knew or planned to file for bankruptcy.
Filing for bankruptcy is a complex legal procedure, and using an experienced bankruptcy attorney is your best bet for a speedy and successful resolution. There are new rules and new forms that so-called bankruptcy preparers are not familiar with, and neither they nor court personnel are allowed to help you or offer advice – for the very good reason that they are not lawyers. We are, and we can help, so come and see us at Van Horn Law Group.