What type of bankruptcy is best for your sole proprietorship?
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What type of bankruptcy is best for your sole proprietorship?

| Jan 25, 2021 | Bankruptcy

If your sole proprietorship is mired in debt and you’re considering bankruptcy, you have a choice regarding what type to file. Unlike corporations and other types of businesses, you have the option to file Chapter 7 or 13, which are most commonly used by individuals, as well as Chapter 11.

Because the assets of the business and your personal assets are indistinguishable legally from each other, you could run the risk of your business creditors being able to seize them to satisfy your debts. That’s why it’s essential to have professional guidance. Let’s take a look at the three options.

Chapter 11

A key advantage of Chapter 11 is that you can keep the business operating under a court-appointed trustee while you work out a payment plan with your creditors. Under Chapter 11 regulations, as noted, you may have to liquidate some of your personal assets to repay debt owed by your business.

Chapter 13

If you file Chapter 13, you work out a repayment plan with your creditors without having to liquidate your personal or business assets. Like Chapter 11, a Chapter 13 bankruptcy lets you keep the business open.

Chapter 7

If your debts are so overwhelming that there’s no viable way to restructure them and you’re prepared to close the business, Chapter 7 can be your best (and perhaps only) option. By filing Chapter 7 (commonly known as liquidation bankruptcy), you can deal with your business and personal debts at the same time.

Which is best for you?

Typically, Chapter 11 is the most time consuming of these options and can be the most expensive – followed by Chapter 13 and then Chapter 7. Which one is best for you and your company will depend on your financial situation, the type of company you own and your goals. If your company provides services rather than products, for example, it can be easier to start over since you’re not dependent on inventory.

Your best bet is to discuss your situation with an experienced bankruptcy attorney. They can provide valuable guidance as you decide what to do. They can also work to protect your rights and your financial interests throughout the bankruptcy process.

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