When the subject of bankruptcy and business comes up, frequently people discuss Chapter 11 and Chapter 7 as options for companies when they fall on hard financial times. If you own a Georgia business and are experiencing financial problems, you may wonder if Chapter 13 bankruptcy has anything to offer you. Whether you can file for Chapter 13 will depend on the type of business you have.
As Chron.com explains, a major distinction between Chapter 13 and Chapter 7 is that Chapter 13 is only meant for individuals. Many businesses, such as LLCs, are formed as entities that are separate from the people who own them so that the owners are not held personally liable for debts or lawsuits. This means that a business that is organized as its own entity apart from an individual person cannot benefit from Chapter 13 and must file bankruptcy under another chapter.
However, a sole proprietorship is one form of business that is not distinguishable from its owner. For the purposes of law, a sole proprietorship and the person who owns it are one and the same. This means that the business debts of a sole proprietorship are also personal debts. This gives the sole proprietor the option of filing for Chapter 13 bankruptcy.
Another difference between Chapter 7 and Chapter 13 is that a Chapter 7 bankruptcy is a liquidation action. To file Chapter 7 is to prepare to sell off the assets of the company to pay off debts prioritized by the bankruptcy court, with eligible debts to be discharged. Chapter 13, however, is a reorganization plan. It allows a greater chance for the sole proprietorship to survive and for the owner to hold on to equipment and assets that could revive the company later on.
Chapter 11 bankruptcy is also available to people who own sole proprietorships. However, Chron.com points out that Chapter 11 carries additional risk because you might end up liquidating your whole estate in bankruptcy. By filing Chapter 13, you can keep your assets as you repay your debts. Also, Chapter 11 may be more expensive and take up more time than if you chose Chapter 13.
If you are a sole proprietor in financial straits, take care in choosing which form of bankruptcy to file. A professional bankruptcy attorney can help you determine if a Chapter 13 filing is the correct course for you and your business.
