I’m sorry to hear about your financial challenges. Running a small business can be tough in today’s economic climate. If you want to stay in business, there are three options under the bankruptcy code: Chapter 11, Chapter 13, and Chapter 7. However,  if you simply want to liquidate the business and don’t plan on continuing, Chapter 7 may be the best option. For the purposes of this post we will focus on Chapter 11 | Chapter 13.

Chapter 11 | Chapter 13 Generally

Chapters 11 | Chapter 13 are somewhat similar. They will both allow you to stay in business and restructure your finances. Under both, you will have some time to sell assets you don’t need or cannot afford. You may be able to discharge some obligations entirely. For other secured debts, you may be able to change your payments terms to make them more affordable.
However, Chapter 11 and Chapter 13 have some big differences. If given the options, most business owners choose Chapter 13 over Chapter 11. Typically, Chapter 11 costs too much and the process takes too long for most people.

In order to qualify for Chapter 13, the filer must have a regular income. Additionally to file a Chapter 13; the business must be  a sole proprietorship. Corporations, partnerships, and other businesses cannot file under Chapter 13. If a small business owner is not operating as a sole proprietorship, or if it has too many secured or unsecured debts; you may have to file Chapter 11. Chapter 11 has no debt restrictions or income requirements.

As a general rule, Chapter 11 proceedings are complicated and expensive, which is why many filers who have the choice will file a Chapter 13 bankruptcy. However, there are streamlined procedures for some business owners with lower amounts of debt who need to file a Chapter 11. However Chapter 11 allows debtors make payments to creditors over a three to five-year period. Although a longer term can be approved.

Chapter 11 | Chapter 13 Differences

Chapter 13 bankruptcies are normally much faster than Chapter 11. In a Chapter 13, the debtor usually must repay debts for three to five years. A Chapter 13 cannot extend beyond five years. If a debtor has too many secured debts; a Chapter 13 may not be possible because the payments may be too large. A couple of major differences between a Chapter 11 | Chapter 13 is that a Chapter 11 does not require the debtor to turn over disposable income to a trustee. However, the debtor must make plan payments that are at least equal to their disposable income over a five-year period. You cannot discharge alimony or child support in either Chapters 11 or 13.

You should discuss your bankruptcy with an attorney to determine which type, if any, is right for your situation. If you are considering bankruptcy, call the Atlanta bankruptcy attorneys at Holston & Huntley, LLC at 888-513-0004. Our attorneys are experienced and can help find the right solution for you! Call us today to schedule a FREE consultation.