Options for Businesses Going Bankrupt

By Clint W. Smith | Published on September 12, 2011 | 0 Comments

When a business is run by a sole proprietor, and that business is suffering or looking at closing its doors for good, there’s a way out, and it could be through chapter 13 bankruptcy. Chapter 13 treats the creditors a little better than chapter 7 does, but it also lets sole proprietors hold onto business assets, as Mesa, AZ, chapter 13 bankruptcy attorney Clint W. Smith, P.C., explains.

Overall, says Smith, chapter 13 bankruptcy in Mesa, AZ, is a nice tool for lots of people who run a business or not. The main reason is how chapter 13 differs from chapter 7. Chapter 13 is all about reorganizing existing debt, while chapter 7 is all about erasing that debt. The issue with chapter 7 is that in the process of erasing the debt, a trustee sells off the debtor’s assets in an effort to make up as much of the loss of that debt payback as possible. But with chapter 13, the debt is restructured so that the debtor can actually pay back the loans and keep assets that in chapter 7 would have been sold off for cash by the creditor.

Imagine you’re the sole proprietor of a business and you require a pickup truck to do your job. You can’t pay your bills anymore, and now you opt for chapter 13 bankruptcy in Mesa, AZ. Well, what’ll happen is that you’ll reorganize your debt into a new payback program that you can actually handle, and you’ll be able to keep the truck that would have been taken away from you under chapter 7 bankruptcy. In a way, your decision to file for chapter 13 means you’re treating the creditors better than if you had filed for chapter 7. As a kind of legal bonus for that kind of decision, you get to keep your property. If having that truck is going to save your business — if you rely that much on that pickup — then filing for chapter 13 bankruptcy in Mesa, AZ, was the right choice.

If you’re an attorney running your own legal practice, and you’re unable to keep up with your loan payments, you could file for chapter 13 bankruptcy and still be able to make good on monthly payments like accounts receivables. Under chapter 7 bankruptcy, the debt would have gone away, but you would likely have been forced to close up shop, since you’d have no way to pay out on your accounts.

Smith explains that this characteristic of chapter 13 bankruptcy in Mesa, AZ, applies to any sole proprietor-owned business, such as a small jewelry store. Under chapter 7, all the inventory would be sold off, and the creditors would reap the rewards. But under chapter 13, the debts are reorganized, and the business can continue to deal in its own inventory as before.

For a small business that isn’t simply a sole proprietorship—such as an LLC or a corporation—filing for bankruptcy is decidedly different. That would involve chapter 11 bankruptcy, says Smith—another type of bankruptcy he practices. That kind of bankruptcy works somewhat like chapter 13, because it calls for restructuring debt and going forward with business as before, but chapter 11 allows the debtor to continue paying employees and rent on office space.

A business in economic straits can hang on. Chapter 7 is definitely not the only option when filing for bankruptcy.