Running a small business was always challenging, but when the economy took a downturn in 2019 and 2020, you found it harder to make ends meet. Being in a position where you’re now starting to see an influx of customers but are drowning in overwhelming debt from trying to stay afloat when so many businesses were closing, it’s realistic to wonder if you’ll be able to keep your doors open much longer.
One of the things you may want to consider is a Chapter 13 bankruptcy. Although this is normally reserved for consumers, it can also be very helpful for those who run small businesses. Chapter 13 bankruptcy allows you to reorganize your debts through a kind of consolidation plan. Unlike Chapter 7 bankruptcy, you won’t be expected to liquidate assets. Unlike Chapter 11, you don’t necessarily need to build a new business plan, lay off workers or take other steps to resolve your debt.
Chapter 13 for small businesses
Small businesses may benefit from Chapter 13 bankruptcy, especially if they are registered as LLCs or corporations. In that case, the bankruptcy may be filed as one for the owner’s personal debts or as one for business debts. For example, if you own your business and are doing well with it but have significant personal debt, a Chapter 13 bankruptcy for consumer debts may be right for you. Your business, which is its own entity when a corporation or LLC, will not be impacted.
Similarly, if your business is struggling, you can consolidate your business debts with Chapter 13 bankruptcy and avoid having the bankruptcy impact your personal finances or credit score.
If your business is not an LLC or corporation but is a sole proprietorship, for instance, then you may be able to consolidate your personal debts as well as your business debts together in the Chapter 13 bankruptcy.
Will a Chapter 13 bankruptcy keep your business running?
If you are still bringing in profits and just need to reduce your monthly payments on excessive debts, Chapter 13 bankruptcy might be a good choice. There are other options, though, such as Chapter 11 bankruptcy for businesses or Chapter 7 liquidation bankruptcy for businesses or consumers. You may want to go over the legal implications of each to decide which is right for you.