Certain small businesses struggling with debt may be able to seek relief through Chapter 13 bankruptcy. This form of bankruptcy allows business owners to keep crucial business assets while getting back on top of financial obligations.
Chapter 13 bankruptcy will not discharge all debts. Instead, debtors will be required to formulate a payment plan allowing them to pay back creditors over time. A payment plan is a complex legal document that requires an in-depth look into a debtor’s finances, so consult with an attorney before going through with the process.
Business Bankruptcy Attorney in Dallas
Deciding to file for bankruptcy is not an easy decision to come to. By the time it becomes an option, bills have already piled up and creditor calls have become unbearable. Contact Littlefield Law Firm to learn more about financial relief through Chapter 13 bankruptcy. Linda Littlefield has nearly 25 years of experience in bankruptcy law. She is well qualified to help you determine which form of bankruptcy is right for your situation.
Call (972) 812-0900 to schedule a time to speak with Ms. Littlefield. Littlefield Law Firm assists clients with bankruptcy and related issues in Dallas County, Collin County, Kaufman County and Rockwall County.
- Small Business and Chapter 13 Bankruptcy
- How Does a Small Business File for Chapter 13?
- Pros and Cons of Chapter 13 for Sole Proprietorships
- Additional Resources
Small Business and Chapter 13 Bankruptcy
Chapter 13 bankruptcy was designed only for individuals. That being said, small businesses cannot use this form of debt relief. However, there is a way around this if you own a business as a sole proprietor.
For instance, suppose the owner of a bakery hopes to use Chapter 13 to get caught up on overdue payments to their suppliers. When it comes time to file, the bakery owner will not be able to file using the name of their business. However, because the bakery owner is a sole proprietor, they can file for Chapter 13 using their name and seek relief for both business and personal debts.
The reason this works is that a sole proprietor is not a separate legal entity such as LLCs and corporations where owners have limited liability for their debts. Rather, business debts from a sole proprietorship are not separate from the owner.
How Does a Small Business File for Chapter 13?
Small business owners will go through the same Chapter 13 process as non-business owners. This means they will have to pass a means test, complete mounds of paperwork, develop a repayment plan and complete multiple education courses.
The repayment plan is the most important aspect of Chapter 13. This elaborate plan evaluates monthly income, expenses and disposable income to determine how debts should be paid down and the cost of payments. It’s vital every payment is made on time and in full. Missing payments may cause the court to dismiss your bankruptcy case which would mean you would be back on the hook for the full amount of all debts.
It’s vital a repayment plan is drafted with the help of a bankruptcy attorney. Business owners will be required to provide in-depth financial information since they have more assets and expenses than the average consumer. Failing to include all the necessary information or guessing how much certain expenses cost may cause a case to be dismissed.
A sole proprietor can only file for Chapter 13 if they have less than $419,275 in unsecured debts and less than $1,257,850 in secured debts. Unsecured debts are those not backed by collateral such as credit card bills. Secured debts, on the other hand, are backed by collateral.
Pros and Cons of Chapter 13 for Sole Proprietorships
There are pros and cons to every major decision and deciding to file for Chapter 13 bankruptcy is no exception. The most significant advantage for sole proprietorships filing for Chapter 13 bankruptcy is it allows the owner to hold on to business assets. A trustee might liquidate such assets if the owner were to file for Chapter 7.
Listed below are additional advantages of Chapter 13 bankruptcy for sole proprietorships:
- Catch up on payments for debts backed by collateral
- Pay off priority debts like back taxes and child support
- Reduce the value of secured debts like auto and equipment loans
- More cost-effective than Chapter 11 or 12 bankruptcy
Perhaps the biggest disadvantage of Chapter 13 bankruptcy is the length of the process. Because a sole proprietor will be required to make reduced payments for up to five years, it will take time for the debts to be paid down. A sole proprietor may also lose non-exempt property, which is property that cannot be protected with an exemption. An owner can keep this property, but they must pay the creditor, which can significantly increase payment plans.
Chapter 13 Basics | United States Courts – Visit the United States Courts website to learn more about Chapter 13 bankruptcy. You can find out how the process works, learn more about the repayment plan and Chapter 13 discharge.
The Plan | Bankruptcy Code – Follow the link provided to read the section of the Bankruptcy Code dictating Chapter 13 payment plans. You can learn more about the contents of a plan, find out when payments start and how discharge works. The information can be read on the Legal Information Institute, an online legal resource provided by Cornell Law School.
Business Bankruptcy Lawyer in Dallas County
Do not try to cut cost by filing for bankruptcy without an attorney. Littlefield Law Firm understands you are already in a financial bind, which is why we strive to provide quality legal representation at an affordable cost.
Getting started is easy. Call (972) 812-0900 to schedule a time to speak with us. Littlefield Law Firm assists clients in areas such as Dallas, Plano, Rockwall and Kaufman.