If you own a business and need bankruptcy help, figuring out the right game plan and making it happen is almost always more complicated than with a straight consumer case. Especially if you want to hang onto the business because it’s your livelihood. But it isn’t always that way. In this blog we give you some ideas about what a relatively simple business bankruptcy looks like.
1. Sole proprietor?
If your business is NOT in the form of a corporation, limited liability company (LLC), or partnership, but is rather a sole proprietorship, that usually greatly simplifies your situation, at least for bankruptcy purposes. “Sole proprietorship” is a fancy way of saying that you and your business are legally a single unit, unlike a corporation which is a legal entity separate from you. Unlike a corporation which owns assets and has debts independent of you as the shareholder and owner of the business, the assets and debts of a sole proprietorship are simply part of your own assets and debts. Dealing with all of the business and personal finances in a single package is much simpler than dealing with two or more (if there are partners or other owners) distinct legal entities.
2. Willing and able to be in a successful Chapter 13 case?
Except in rare circumstances, a straight bankruptcy—Chapter 7—is not the way to go if you have a business and want to keep it alive during and after your bankruptcy. It is difficult in a Chapter 7 case to exempt—protect from the trustee—all of the assets of a business. For example, the trustee may very well claim for herself (and the creditors) all the ongoing income from the business once the bankruptcy is filed, which of course you need for your own survival. The bankruptcy trustee would also have the power and often the inclination to shut down the business as soon as the bankruptcy is filed, especially if the business is not well-insured from any potential liabilities. Chapter 13 is much better suited to allow you to keep the business and all of its assets, and to maintain control over it.
3. Reasonably steady income?
Small businesses, particularly those considering bankruptcy, often have very irregular incomes. Chapter 13 requires you to have income “sufficiently stable and regular . . . to make payments under a plan under Chapter 13.” There is certainly some flexibility in how those plan payments are structured, including allowing for seasonal fluctuations or for anticipated future increases or reductions income. But if business income is highly erratic, putting together a realistic Chapter 13 plan and sticking with it to a successful conclusion becomes much more of a long shot.
4. Not too much debt, and not of the troublesome kind?
Naturally, having a huge amount of debt, and especially having certain challenging kinds of creditors—such as aggressive business landlords or angry former business partners—also reduces the odds that your bankruptcy will run smoothly.
Also, if your unsecured debts total $360,475 or more, or your secured debts total $1,010,650 or more, you cannot file a Chapter 13 bankruptcy case. These amounts may sound relatively high but remember they include BOTH personal and business debts. Also the unsecured debt amounts can include less obvious debts, like the cumulative amount owed on an abandoned business lease, or the unsecured portion of a personal or business mortgage that is “underwater.” If as a result you don’t qualify for Chapter 13, Chapter 11 is a possible option. But since Chapter 11 is so tremendously expensive—easily 10 or 20 TIMES the cost of a Chapter 13 case—it is seldom a practical solution.
These pointers should give you some idea whether your potential business bankruptcy would be relatively simple. But figuring out what is your best game plan—regardless how simple or complex that it is—requires a careful analysis by a highly competent attorney. You’re not just trying to preserve assets as in a consumer bankruptcy case, you are also fighting to preserving your livelihood. Get the help you need so that you can accomplish that.