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What Are the Bankruptcy Options for Small Businesses?
If you’re a small business owner facing financial difficulties and unable to keep up with debt obligations, you might be considering bankruptcy for a fresh start. Skilled West Virginia bankruptcy lawyers can help you weigh your options between the bankruptcy plans available, namely Chapter 11 and Chapter 13.
They can explain the nuances to help you choose the best route for you and your business. Whether you need to discharge your debts to start afresh or are looking to restructure your debts to keep your business afloat, a suitable bankruptcy option is available.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also known as repayment bankruptcy, is designed for individuals or small business owners with a regular income but are struggling with debt. Corporations and partnerships are not eligible. The plan allows you to retain assets such as your home and car as you repay some or all of your debt over 3-5 years.
Martinsburg Chapter 13 bankruptcy attorneys can help you navigate the Chapter 13 bankruptcy process, which entails the following:
- Filing a petition with the bankruptcy court in your district and providing crucial financial information such as expenses, income, assets, and debt.
- Court approves a repayment plan where you make monthly contributions to a trustee who distributes the payments to your creditors.
- After the 3-5 year repayment period, depending on your income and debt amount, any unsecured debt that is unpaid can be discharged, meaning you’re no longer responsible for paying it.
- You keep all your assets unless you choose to surrender them
- The court can approve cram-downs of secured debts like mortgages or car loans to lower payments
- You commit all your disposable income towards the repayment plan of 3-5 years.
Chapter 13 allows you to catch up on missed debt repayments and get back on track based on a more manageable repayment plan. Foreclosures and collections stop while you get your finances in order.
How Can I Benefit from Filing Chapter 13 Bankruptcy?
Chapter 13 bankruptcy has several provisions that may enable you to continue running your small business as you repay your debts. It also provides the following advantages:
Safeguard Business Assets
Once you file Chapter 13 Bankruptcy, you can preserve or exempt some business assets to keep the business running.
Chapter 13 bankruptcy lawyers in Martinsburg highlight two types of assets worth noting as you file your petition:
- Exempt business property: This category covers business-related assets up to a specific monetary value. The property you retain must be reasonably required to run your business, and the law might let you choose what to keep. For example, you can exempt your computer, desk, and expensive software if you’re an accountant in business.
- Non-exempt commercial property: You can also maintain the non-exempt commercial property when you file Chapter 13 bankruptcy, unlike in Chapter 7, where the trustee sells the assets. Examples are fixtures, stocks, and precious equipment. However, you need to pay for their worth in your plan.
Delete Company Debts
Your business obligations are treated as personal debt if you’re a sole proprietor. If you don’t have any collateral, you’ll likely not pay anything on energy bills, overdue invoices, medical bills, and credit card balances when you declare bankruptcy.
You’ll also be released from qualifying debt once you finish your plan. The law bars creditors from collecting from you or your company after discharge.
Pay Off Major Debtors if You Cram Down Secured Loans
As a sole proprietor, you’re individually accountable for priority obligations such as taxes and major creditors. Once you file Chapter 13 bankruptcy, you may pay them off in your paycheck schedule. Some secured debts, such as equipment and automobile loans, may be reduced to the property value under this plan.
If you surrender these items, you save on interest and reduce the monthly payments due. Skilled bankruptcy attorneys in Martinsburg can provide more insight to help you prioritize your debt repayment to reduce the burden.
Am I Eligible for Chapter 13 Bankruptcy?
To qualify for Chapter 13 bankruptcy as a small business owner, you must meet the following requirements:
- Debt limit: Your secured and unsecured debts must be within the allowed bankruptcy court limits, which are subject to change periodically.
- Regular income: You must provide proof of a stable source of income, such as retirement income, wages from employment, or business income.
- Previous bankruptcy discharge: You must not have received a discharge on Chapter 7, 11, or 12 bankruptcy within the past four years. You also must not have filed a Chapter 13 case within the past two years.
- Credit counseling: You must have completed credit counseling from an approved agency within six months before filing for bankruptcy.
- Tax returns: You must have filed all the required tax returns for the past four years
- Disposable income: You must have enough disposable income to meet your debt obligations under the Chapter 13 bankruptcy plan. Disposable income is the amount that remains after deducting the necessary living expenses from your income.
Your Small Business Can Benefit from Chapter 13 Bankruptcy with the Guidance of a Skilled Bankruptcy Attorney
Discharging debt through bankruptcy can be stressful, and the process can be further complicated because of the strict legal regulations. Filing Chapter 13 bankruptcy can provide some relief and give you space and time to reorganize your finances as you continue to run your business.
Consider working with experienced Chapter 13 bankruptcy attorneys in West Virginia for the most favorable outcome. They can guide and help you determine the best course of action. Depending on your eligibility, bankruptcy attorneys at Hinkle Law PLLC can also help you evaluate other options to discharge your debts. Call us at 304-944-0571 to schedule a FREE case evaluation.
