Small Business Owners, Could Chapter 13 Protect Your Business Better?
Are you a business owner who must declare personal bankruptcy? Declaring bankruptcy will gain you the legal and financial protection you need, but it puts your business at risk as well. The good news is that filing for the less commonly-used Chapter 13 bankruptcy could protect that business. How? Here are three key reasons Chapter 13 bankruptcy may be the best choice for small business owners.
1. No Liquidation Occurs
Individuals filing for Chapter 7 bankruptcy—known as liquidation bankruptcy—may see their business interests sold to pay debtors. Sole proprietors could lose physical assets, including tools of the trade, business vehicles, real property, and even accounts receivable. Stock owned in corporations is also an asset that could be sold by the trustee.
However, Chapter 13 doesn't liquidate anything. Instead, the debtor crafts a plan to repay as much as possible within a period of three or five years. Certain obligations are prioritized, and the remaining eligible debts at the end of that period are discharged. In filing for Chapter 13 bankruptcy, you either keep your business or your business stake.
2. You Continue to Pay Debts
Creditors can take a hit when a debtor files for bankruptcy. But they often take less of a hit when that person uses Chapter 13. Why? Many people who use Chapter 7 pay little or no money back to creditors. Not paying back your creditors severs the business relationship, which is not a good look for someone who wants to continue operating their business. You may see no credit extended any further.
A Chapter 13 repayment plan lets you continue to pay back creditors. By law, the repayment plan must provide them with as much or more than they would have received from liquidation. You can keep a reasonably good relationship with business lenders, partners, and suppliers—making continued business more viable.
3. The Bankruptcy Stay Lasts
Finally, all bankruptcy comes with an automatic stay against collections. Creditors cannot come after the filer for collections until the stay is lifted. The stay is typically lifted when the case is closed.
Choose the quick route of Chapter 7, and this stay could be lifted in a few months. Choose Chapter 13, though, and the stay is in effect for years. The stay for Chapter 13 buys you time to get your house in order and avoid losing any assets you need to keep your business afloat.
Where Can You Learn More?
What other benefits could come from Chapter 13 bankruptcy as a business owner? Find out by meeting with an experienced Chapter 13 bankruptcy attorney in your state today.