When Can A Business Owner File For Chapter 13 Bankruptcy?
If you own a small business in South Florida, and you are considering bankruptcy but want to keep your business open, you may be wondering if you are eligible to file for Chapter 13 bankruptcy. While Chapter 13 bankruptcy is a type of consumer bankruptcy, there are some limited circumstances in which a small business owner may be able to file for Chapter 13 bankruptcy. In short, to be eligible for Chapter 13 bankruptcy as a business owner (and to reorganize business debts through Chapter 13 bankruptcy), you will need to be a sole proprietor. However, even if you are ineligible for Chapter 13 bankruptcy, you may still be able to reorganize your business debts with a Chapter 11 bankruptcy filing. Our West Palm Beach bankruptcy lawyers can explain in more detail.
Chapter 13 Business Bankruptcies Are Limited to Sole Proprietors
Since Chapter 13 bankruptcy is a type of consumer bankruptcy, in general, businesses cannot file for Chapter 13 bankruptcy. However, sole proprietorships are a kind of exception. Why are sole proprietorships different? In short, since a sole proprietor and their business are the same legal entity for financial purposes, tax purposes, and so forth, a Chapter 13 sole proprietorship bankruptcy is, in effect, a bankruptcy filing for the consumer who is the sole proprietor.
Chapter 13 bankruptcy is often preferable to Chapter 11 — another type of reorganization bankruptcy — for sole proprietors because the costs are less than those for a Chapter 11 bankruptcy filing. Yet if your business is not a sole proprietorship and you want to file for a reorganization bankruptcy, you should know that you have options.
Chapter 11 Bankruptcy is Similar to Chapter 13 Bankruptcy
Most businesses that want to keep their doors open during a reorganization bankruptcy case are eligible for Chapter 11 bankruptcy. While the costs for a Chapter 11 bankruptcy are higher than the costs for a Chapter 13 bankruptcy, this path gives the business debtor an opportunity to reorganize debts, catch up with creditors, and remain in business.
Subchapter V May Be a Possibility for Certain Small Business Owners in West Palm Beach
While the costs for Chapter 11 can be quite high, and the process can be quite complicated, many small business debtors can actually qualify for a specific type of Chapter 11 bankruptcy known as Subchapter V. To qualify for Subchapter V currently, a business debtor must be engaged in a business that is not single-asset real estate and must owe less than $7.5 million in debt. Subchapter V is a streamlined form of Chapter 11 bankruptcy designed specifically for small businesses.
In some cases, businesses where the owners meet the definition of a family farmer or fisherman can be eligible for another type of streamlined reorganization bankruptcy under Chapter 12.
Contact a West Palm Beach Chapter 11 Bankruptcy Attorney
To learn more about filing for reorganization bankruptcy as a business, you should get in touch with one of the experienced West Palm Beach bankruptcy attorneys at Kelley, Fulton, Kaplan & Eller today to find out about your options.