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West Palm Beach Bankruptcy & Business Attorneys > > Bankruptcy Attorneys > How Does Bankruptcy Work For A Small Business?

How Does Bankruptcy Work For A Small Business?


If your small business is struggling and you are considering bankruptcy, you are likely wondering how a bankruptcy case would work for your business. There is no single way that bankruptcy works for small businesses since there are different types of bankruptcies that can be appropriate for a small business. To be clear, the way your business bankruptcy will work will depend largely on whether you file for a liquidation bankruptcy or a reorganization bankruptcy. Our West Palm Beach bankruptcy lawyers can explain how these different types of bankruptcy can work for a small business in South Florida.

Business Liquidation Bankruptcies 

Many businesses file for liquidation bankruptcy under Chapter 7. While this type of bankruptcy is used by individuals and businesses alike, there are some key distinctions for businesses that are filing for Chapter 7 bankruptcy.

First, it is important to know that, unlike an individual debtor filing for Chapter 7 bankruptcy, a business does not have to pass the “means test” in order to qualify. In addition, a business does not receive a bankruptcy discharge at the end of a Chapter 7 bankruptcy case, and a business does not have its debts erased for a “fresh start” the same way an individual does. Instead, the business’s assets are liquidated, and the business closes.

In some Chapter 7 business cases, small business owners have signed personal guarantees for business loans or for lines of credit. In those circumstances, even if the business is its own entity, the individual owner or owners will still be responsible for those debts after the business Chapter 7 bankruptcy case has concluded. Accordingly, some small business owners ultimately decide to file for bankruptcy themselves in order to wipe out those debts.

Business Reorganization Bankruptcies 

When a business files for reorganization bankruptcy, the business will also develop a debt reorganization plan in order to repay creditors over a period of time. Most Chapter 11 bankruptcy cases have reorganization plans that take from six months to two years to complete, while most Chapter 13 bankruptcy plans take three to five years. Unless a business is a sole proprietorship, it will not be eligible to file for Chapter 13 bankruptcy and will file for Chapter 11 bankruptcy. Within Chapter 11 bankruptcy, many small businesses can be eligible to file for Subchapter V, which is a more streamlined type of bankruptcy for smaller businesses.

The primary way in which a reorganization bankruptcy works for a business is that the business goes through a Chapter 11 case and makes payments on debts owed, and the business can stay open. When a business files for Chapter 11 bankruptcy, to be clear, the business is not closing. Instead, the business keeps its doors open while it reorganizes its debts and repays creditors.

Contact a West Palm Beach Business Bankruptcy Attorney 

If you have questions about business bankruptcy or what type of bankruptcy is best for your small business, you should seek advice from one of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller. We can begin working with you today on your business bankruptcy case.



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