Helping You Make the Best Decision OR Make the Decision That’s Best for You
Filing bankruptcy as a business can help a small business survive. It may be a hard decision to make, but if you are in a tough position with your business, you should at least consult with an attorney to understand what options you have available to you. Learn more about business bankruptcy options to help you make an informed decision.
Small Business Bankruptcy Options
The type of bankruptcy you file will depend on how your business is incorporated. If you are a sole proprietor, then your options will be different than if you own an LLC or S-Corp. It’s important to understand which type of bankruptcy would be available to you and what it would mean for your business.
Sole Proprietor Options
A sole proprietorship is a single-owner business that has not been incorporated or structured as an LLC. If you have your own business but have not formally created a corporate structure, then you have a sole proprietorship. In the eyes of the law, there is no separation between the business and the owner, so creditors can sue you personally. As a sole proprietor, the business bankruptcy options are:
Chapter 7 Bankruptcy:
With a Chapter 7 bankruptcy, you will be asked to give up any property you own that is not exempt under Arizona law. Exemptions are intended to let you keep certain necessities. Under Arizona law, you will be able to exempt a set amount of equity in your home, your car, and many other assets. However, business property may not be exempt.
Chapter 13 Bankruptcy:
In Chapter 13 bankruptcy, your property is not liquidated. Instead, you will have to agree to a repayment plan to pay off some or all of your debts over a 3-5 year period. Once you complete your repayment plan, any remaining debts will be discharged, with a few exceptions (e.g., student loans).
Corporations (Partnerships, LLCs, S-Corps) Options
If you own a corporation, then your bankruptcy options can be a little different. Because Chapter 13 bankruptcy is tied to an individual, you are not able to file Chapter 13 for a corporation. Instead, you would have to file a Chapter 11 bankruptcy.
Chapter 7 Bankruptcy:
When you file Chapter 7 bankruptcy as a corporation, you lose control of the business. The bankruptcy trustee will take over the business assets and determine whether it is worth selling the business entirely or only selling the assets of the business. If all goes well in a Chapter 7 bankruptcy, the member(s) or officer(s) of the business can walk away and leave the selling of the business or business assets up to the bankruptcy trustee.
Chapter 11 Bankruptcy:
Chapter 11 bankruptcy is the only way for a small business seeking to restructure and continue its operations. This type of bankruptcy is very complex and time-consuming. Because of this, business members and officers try to stay away from this form of bankruptcy unless they absolutely have to.
How We Can Help
Partner with an experienced, local attorney for a free bankruptcy consultation. Call 480-276-1979 or fill out the contact form today.