The act of declaring bankruptcy, whether a personal bankruptcy or a business bankruptcy, can be a trying experience. For many, the declaration of bankruptcy brings about feelings of failure and ramps up stress levels to an all-time high. To top it off, bankruptcy law can be difficult to navigate alone, making an already-unpleasant experience even more anxiety-laden and confusing. You may have been told that anyone looking to include their business as a part of their bankruptcy needs to file for Chapter 11. However, this is not always the case.
Filing for Chapter 7 bankruptcy involves calculating current assets and liquidating those assets (unless they fall under one of the federal or state exemptions) in order to repay money to creditors. However, once assets are liquidated, no payment of the debt is negotiated or expected with a Chapter 7 Bankruptcy.
Declaring a Chapter 13 bankruptcy involves making a repayment agreement with creditors where the amount currently owed is reduced or the amount of time creditors give debtors is increased, allowing debtors to repay over a longer period of time than previously agreed to.
Chapter 11 bankruptcy differs from Chapter 7 and Chapter 13—both ways of filing for personal bankruptcy—in that it is specifically for businesses. In Chapter 11 bankruptcy, businesses negotiate with creditors to repay debts owed similarly to how personal debts are re-negotiated in Chapter 13 bankruptcy.
If your business is a corporation, Chapter 11 bankruptcy is the right filing choice. The same is true for partnerships. These businesses exist outside of their owners, and thus the type of bankruptcy designed to reorganize businesses and their debts is the appropriate choice for the owners of partnerships or corporations.
What about businesses that aren’t corporations or partnerships? In the case of a sole proprietorship, Chapter 11 bankruptcy is an option—but not the only one. In many cases, sole proprietors can include their businesses as a part of their Chapter 13 bankruptcy and can stay in business while they work out the details of their debt repayment rather than having to liquidate their businesses as part of their bankruptcy terms.
Unfortunately, Chapter 7 bankruptcy operates under different rules than Chapter 13 or Chapter 11 bankruptcy, and business owners may have to liquidate their businesses in order to provide repayment funds to creditors. This is because Chapter 7 does not involve a repayment plan as part of the reorganization of debts, unlike Chapter 11 or Chapter 13.
If you are unsure which type of bankruptcy best fits your financial situation, consider speaking with Justin M. Myers, Attorney-at-Law, LLC. Justin M. Myers is an experienced Chapter 13 bankruptcy attorney in Salt Lake City and can help you determine which types of bankruptcy you qualify for and which type would be most suitable for your case.