Understanding the Different Types of Small Business Bankruptcy

Understanding the Different Types of Small Business Bankruptcy

September 18, 2019

Is your business hemorrhaging money, and the only way forward you can see is bankruptcy? Depending on the circumstances you’re facing, you can choose from any of three kinds of bankruptcy for your small business. Here’s a quick overview of your options for small business bankruptcy in Montgomery County, TX.

Chapter 7

Chapter 7 bankruptcy is a commonly used form of personal bankruptcy that is also available for small businesses. It’s generally the best option for debtors who cannot pay back their debts. Any nonexempt assets you own would be candidates to be sold to pay back your business debts, and your creditors will be paid back to the extent you have available funds. This type of bankruptcy is an option for individuals who own and operate sole proprietorships, as well as businesses categorized as partnerships, limited liability companies and corporations.

Chapter 13

Chapter 13 bankruptcy can only be filed by individuals, meaning this is only an option for sole proprietorships. This bankruptcy option allows an individual to restructure his or her debt to pay off the debt over time. The benefit here is that you get to keep your assets, and you get more time to pay your debts. But again, other business structures beyond sole proprietorships cannot use this type of bankruptcy.

Chapter 11

Chapter 11 bankruptcy is the only type of bankruptcy option available for small businesses that wish to restructure and continue operating if the business is structured in any way other than as a sole proprietorship. The process can be quite complex and time-consuming, but if you want to keep operating your business, it might be the only real option available to you.

There are certain issues you’ll need to be aware of in a Chapter 11 case that might not have affected you in a Chapter 7 or Chapter 13 case. Some examples include:

  • Extra reporting requirements: When filing for Chapter 11 bankruptcy, you’ll be required to include some extra reporting requirements beyond the standard balance sheets, operational statements, cash flow statements and income tax returns. You’ll need to file information about your profitability, cash receipts and disbursements over a certain time, comparison of those receipts and disbursements with protections in previous reports, information about timeliness of tax payments and administrative expenses, information about compliance with requirements about such payments and other information requested by the bankruptcy trustee.
  • Insurance: You’ll be required to maintain customary insurance as part of filing for bankruptcy under Chapter 11.
  • Taxes: You’ll be required to pay all taxes entitled to an administrative expense priority other than the taxes being contested in proceedings in other settings.
  • Filing: You must file your Chapter 11 plan and disclosure statement on or before the 300th day after you receive your date order for relief.

For more information about your small business bankruptcy options in Montgomery County, TX, contact an experienced bankruptcy lawyer at James R. Jones, Attorney at Law with your questions. We specialize in Chapter 7 bankruptcy proceedings for small business clients, and would be happy to discuss your options with you.

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