Chapter 13 vs Chapter 11 Bankruptcy for Small Business
Is your small business facing financial distress? Bankruptcy is a viable option but not the only one. Restructuring debt under Chapter 11 or Chapter 13 could be a lifeline to help your business and financial life afloat.
Reorganizing Benefits for Small Business Owners
Chapter 13 vs Chapter 11 bankruptcy both allow small business debtors to suggest a plan to restructure their business finances, which in turn can help you stay in business. Qualifying Chapter 11 or 13 plans can:
- you may be able to retain property that you need to operate your business
- you may be able to sell assets no longer needed or that you can’t afford
- change payment terms on secured debts such as real property mortgages and loans on equipment
- get rid of obligations that you are not able to pay over the plan term, in Chapter 11 bankruptcy only
Many small business owners, if they have that option, choose Chapter 13 vs Chapter 11 bankruptcy (note: businesses can’t file for Chapter 13). Chapter 11 may allow more flexible options, but Chapter 11 is a more expensive investment and may be cost prohibitive for you.
Are you eligible for Chapter 11 or Chapter 13 Bankruptcy?
Small business corporations or LLCs are ineligible to file for Chapter 13 but virtually anyone can file for Chapter 11 bankruptcy
- Chapter 13 eligibility. Chapter 13 is available to individuals with regular income. If your business is a sole proprietorship, you can file a petition for Chapter 13 in your name and business debts will be included in the filing. Corporations, partnerships, LLCs and other entities cannot file for Chapter 13. Chapter 13 has limits on the amount of debt that can be included.
- Chapter 11 eligibility. Most people and businesses are eligible to file for Chapter 11 bankruptcy including individual people, corporations, partnerships, joint ventures, and LLCs. Fortunately, there are no debt or income limitations apply for Chapter 11.
Are you a small business facing a financial crisis? Find out more about Small Business Bankruptcy in Jacksonville, FL or contact Ponte Vedra law Group at (904) 405-1250.
Chapter 11 Proceedings: The Good, Bad and Ugly
Chapter 11 bankruptcy usually involves more complex cases and can be more expensive from a legal perspective.
Important Chapter 11 advantages include:
- Chapter 11 allows you to renegotiate contract terms and is useful if you have multiple creditors. If you are a small business debtor and need extended payment terms for mortgages, equipment loans, lines of credit, the Chapter 11 may be right for you.
- If less than the full balance on a particular debt is to be paid in the plan, the discharge will occur at the point of plan confirmation (approval) rather than after the completion of the plan. With Chapter 11 you are not required to turn over your disposable income to a trustee.
- In Chapter 11, it’s typical that a trustee will be appointed.
You may be able to take advantage of certain provisions to streamline the Chapter 11 process, especially if:
- you are engaged in business or other commercial activities, and meet current debt limitations
Chapter 13 Proceedings: What to Know
Chapter 13 is only for individuals and is not for small businesses that are incorporated. The amount of debt you can file for is significantly less than Chapter 11.
- These plans have a five-year limit. That may not give you enough time to repay debt and retain the assets needed for your business.
- The debtor must pay all disposable income—the difference between his or her monthly earnings and the amount reasonably necessary for support—into a repayment plan.
- A Chapter 13 trustee is always appointed to disperse plan funds
Otherwise, Chapter 13 would likely be the preferred choice because:
- It is less expensive to file for Chapter 13 than Chapter 11.
- The process tends to go faster.
- Debtors can discharge more debt types, such as nonsupport obligations arising from a marital property settlement agreement.
- If the debtor pays all unsecured creditors in full, the court may shorten the commitment period
We hope this article helps you navigate Chapter 13 vs Chapter 11 Bankruptcy.
Whether its business or life, Rob Wilcox of Ponte Vedra Law provides unwavering strategic legal representation. No matter how big the challenge, we’ll get through this together.