Individuals Families and
Small Business Owners
If your small business is deep in debt, you may be wondering whether bankruptcy would help. The answer to this question depends on the form of your business and whether you are personally on the hook for the debts, along with which kinds of debts you have. Small businesses should retain an attorney if they are considering bankruptcy. At the Bankruptcy Center of Illinois, our DuPage County business bankruptcy lawyers may be able to help.
Small businesses will need to elect Chapter 7, Chapter 11, or Chapter 13 bankruptcy. Chapter 7 bankruptcy may be appropriate for a small business that is a sole proprietorship. In a Chapter 7 bankruptcy, the trustee will evaluate the business property, sell it, and distribute funds. The goal is to receive a discharge. Chapter 11 bankruptcy may be used by small businesses, but it can be time-consuming and expensive. Only sole proprietorships can use Chapter 13.
Struggling small business owners may wish to file for Chapter 7 bankruptcy. As a sole proprietor, you can resolve personal and business debts in a single Chapter 7 bankruptcy. Assets can be protected by using Illinois exemptions. For instance, as a sole proprietor, you can use a tools of the trade exemption to protect assets that are reasonably necessary for your employment, up to a certain amount. If your business is service-oriented and does not require a lot of goods and equipment, it may even be possible to get a discharge and continue business operations. A bankruptcy trustee will sell any non-exempt property in the course of the proceeding.
Partnerships, limited liability companies, and corporations can file for Chapter 7 bankruptcy, but they cannot receive a discharge of their debts by filing. Furthermore, while partners can file for a Chapter 7 bankruptcy, exemptions cannot be used to protect their assets. If there are not enough business assets to pay the debts of the partnership, the trustee may pursue personal assets to satisfy obligations; accordingly, it is usually better for each partner to separately file their own Chapter 7 bankruptcy case. In most cases, corporations will wind up in a better position if they sell the property for more than what they would get through bankruptcy and negotiate with creditors, rather than filing for Chapter 7 bankruptcy. There are also risks to filing for Chapter 7 bankruptcy as a limited liability company.
A business bankruptcy attorney in DuPage County also can help reorganize a business under Chapter 11. Sole proprietorships, partnerships, and corporations are all able to file for bankruptcy under Chapter 11. The debtor business can restructure according to a plan approved by the court. The plan is supposed to balance income and expenses, sell assets, and permit the business to stay in operation.
The structure of the business will dictate what happens during Chapter 11. When a sole proprietorship files for Chapter 11 bankruptcy, the business and personal assets of the owners will be involved in the bankruptcy. When partnerships file, the partners’ personal assets may be used to pay creditors. Corporations are separate from their owners; a Chapter 11 bankruptcy will not risk the personal assets of stockholders, aside from their investment in stock.
In Chapter 11 bankruptcies, a creditors’ committee will be appointed; usually, it is made up of a debtor’s major unsecured creditors. The creditors’ committee will investigate, consult, and participate in creating a plan for the business. Its job is to make sure that the business is managed properly by the debtor.
A DuPage County business bankruptcy attorney also can help a sole proprietorship file under Chapter 13. In a Chapter 13 bankruptcy, your assets can be retained while your debts are reorganized. The debt repayment plan is usually carried out over 3-5 years. You will make monthly payments to your trustee, who will pay creditors according to the plan. Generally, Chapter 13 is for individuals, but sole proprietors may be able to file under this chapter as well. Businesses not structured as sole proprietorships, such as corporations or limited liability companies, cannot file under Chapter 13.
As a sole proprietor, all of your income and property, whether personal or business, will be available to pay your debts, whether they are personal debts or business debts. You will be able to keep non-exempt assets while reorganizing and paying off debt.
Small businesses can fail for many different reasons. Sometimes it makes sense for a small business owner to respond to a failing business by filing for bankruptcy and closing down the business. However, there are lots of complicated considerations involved in small business bankruptcy. If you are interested in filing for bankruptcy as the owner of a small business, you should consult a business bankruptcy lawyer in DuPage County. Call us at (773) 993-0024 or contact us via our online form.