There’s no denying that running a small business is challenging in the best of times. Unfortunately, the health crisis that has swept the globe since 2020 has put an even greater strain on small businesses in our community.
Facing financial difficulties is nothing to be ashamed of, and small business owners in the Brownsville area deserve financial relief. If your small business has been struggling in the red, bankruptcy might be the tool you need to break free.
Today, your Brownsville bankruptcy attorneys at the Law Offices of Phillippe and Associates will dive into the process of filing for small business bankruptcy and whether it is right for your business.
Filing for Bankruptcy as a Sole Proprietor
The process for filing for bankruptcy on behalf of your small business depends on what sort of business you own. Generally speaking, these types can be split into sole proprietorships, partnerships, or corporations.
If you are the sole proprietor of your small business, then the financials of your business and your personal finances will both be a part of your filing. There are various pros and cons for the different types of bankruptcy for sole proprietors.
Chapter 7 is a good option for sole proprietors who have closed or are planning to close their business. In this filing, your non-exempt assets are liquidated in order to repay your creditors. Because of this, your business may be seized in a Chapter 7 filing. You may also lose the property if you have significant assets beyond your household goods and the tools of your profession. This means that it is also an approach for service-based professionals.
The benefits of Chapter 7, on the other hand, are the fact that it’s relatively quick, and it will wipe your personal and business debts, unlike Chapters 11 and 13 which both typically require repayment plans.
Chapter 11 is one of the options that allow businesses to continue to operate after filing. For most sole proprietors, Chapter 13 is a better alternative to Chapter 11 as it tends to be cheaper and less time-consuming.
However, you won’t be able to file for Chapter 13 in Texas if your secured debts exceed $1.2 million or your unsecured debts exceed $419,275. In either case, Chapter 11 may be your next best choice.
Chapter 13 is a good option for small business owners whose debts exceed the Chapter 7 limits or who intend to keep their business running after filing for bankruptcy. Through Chapter 13, you will create a repayment plan through which you will pay off as much of your debts as possible over the course of three to five years. This will allow you to continue operating your business with more manageable monthly payments.
In the event that the cost of the equipment used in your business exceeds the income made by your business, you may be ineligible for Chapter 13. This is because you will need to prove that you can make enough income to pay back an amount equivalent to the worth of your non-exempt assets.
Filing for Bankruptcy as a Partnership or Corporation
Most small business partnerships and corporations that file bankruptcy do so through Chapter 11. With that, there are also certain situations in which a small business might choose Chapter 7, despite its drawbacks.
Chapter 7 filings amongst partnerships and corporations are rare, but they do happen. Usually, this is done when a business is closing and needs to liquidate itself to pay back creditors. In these cases, the business owners have determined that it would be easier to hand off this job to a bankruptcy trustee rather than managing the process themselves. This can significantly streamline the process of liquidation.
Nevertheless, it is worth noting that debts cannot be discharged by partnerships or corporations through Chapter 7. This means any debts not covered by the liquidated assets will remain even after the bankruptcy process is ended.
Chapter 13 is not available to small business partnerships and corporations. Instead, these businesses tend to file under Chapter 11. Just like with a sole proprietorship, a Chapter 11 filing involves creating a repayment plan to pay back as much of your business’ debt as possible. This lets your business stay open while repaying its debts.
Unfortunately, Chapter 11 filings can be quite costly. Despite that, Chapter 11 Subchapter 5 may allow small business owners access to a process similar to Chapter 13.
Filing for Small Business Bankruptcy with the Help of A Brownsville Bankruptcy Attorney
There can be many obstacles when it comes to determining the right steps to take when your small business is facing a financial crisis. The process may be complex, but a dedicated Brownsville bankruptcy attorney can help you determine which option will work best for you.
Reach out to the compassionate bankruptcy lawyers at the Law Offices of Phillippe and Associates today to learn more about the benefits and pitfalls of bankruptcy filings.