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Bankruptcy Options for Your Small Business


When you decide to go into business for yourself, there’s almost always a period of struggle. If your small business is facing financial difficulties, the first thing you need to ask yourself is whether you can realistically make the business a success. Are your problems short-term? Do you just need to get “over the hump” to make the business self-sustaining, or are there fundamental challenges with your business plan or the market, such that you’ll just be throwing good money after bad?

Regardless of how you answer that question, a bankruptcy filing can help you. When you file a bankruptcy petition, an automatic stay immediately goes into effect, preventing your creditors from calling, writing or taking legal action against you to collect the debt. That can buy you the time you need to turn things around. If, on the other hand, you simply need to close down the business, a bankruptcy filing can help you permanently discharge some of your debts as you wind things down.

Your Options in Bankruptcy

As a small business owner, you generally have three options for filing bankruptcy: Chapter 7 liquidation, Chapter 13 reorganization or Chapter 11 reorganization:

  • Chapter 7 liquidation — With a Chapter 7, you are allowed to permanently extinguish certain debts in exchange for the sale of your property. Some debts cannot be discharged and others, such as tax arrearages, are extremely difficult to discharge.
  • Chapter 13 reorganization — Chapter 13 allows you to restructure existing debt, working out new payment arrangements with creditors. Chapter 13 is only available, however, to debtors who operate their businesses as sole proprietorships. There’s also a ceiling on the amount of debt you can renegotiate.
  • Chapter 11 reorganization — Chapter 11 is available to any business, regardless of legal structure, and there’s no debt limit. However, Chapter 11 is typically more expensive and time-consuming than Chapter 13.

Contact the Law Offices of Howard N. Sobel

For professional and knowledgeable legal counsel with a personal approach, contact our office by e-mail or call us at 856-424-6400. We are available evenings and weekends upon request. We take all major credit cards. Home and hospital visits can be arranged for personal injury victims.