Bankruptcy can be a useful option for taking care of unmanageable debt for companies big and small alike. However, the types of bankruptcy that are best differ for each. Even within the domain of small businesses, the type of bankruptcy that’s best depends on the business’ circumstances. Here are the options a small business has when filing for bankruptcy.
Best Options When Filing for Bankruptcy as a Small Business
- Chapter 7 – The only type of small business that receives a discharge of debts under Chapter 7 is a sole proprietorship. Additionally, you are still responsible for any company obligations you were liable for. With this being the case, Chapter 7 bankruptcy is best only if you are not personally liable for company debts and if you are planning to shut down.
- Chapter 11 – While it’s normally used for big corporations, Chapter 11 bankruptcy can successfully be used by small companies, as well. Though it’s more expensive than a Chapter 7 or 13, you have more time and freedom in how you wish to go about reorganizing your business and making payments. With that said, it’s important to feel confident you can eventually pay back your debt with the extra time the Chapter 11 gave you.
- Chapter 13 – This type of bankruptcy allows small business owners who are sole proprietors to keep all their assets and to pay all their debts through a repayment plan. Chapter 13 allows small businesses to stay open while they pick up the pieces. Under a Chapter 13 bankruptcy, you can also eliminate your personal liability for business debts. The biggest drawback is that at 3 to 5 years, Chapter 13 takes longer than other forms of bankruptcy.
The type of bankruptcy that’s best for you and your company depends on factors such as time constraints, budget, and future plans. As a small business owner looking at filing for bankruptcy, consider speaking with an experienced bankruptcy attorney before you make your decision final.
Garland & Mason, LLC is a New Jersey bankruptcy law firm with professionals eager to help you find the best route to financial freedom. We offer free consultations to people thinking about bankruptcy.