Small Business Bankruptcy: Chapter 11 or Chapter 13?

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The two most viable bankruptcy options for small business owners who want to stay in business are Chapter 11 and Chapter 13. Both plans propose plans for debtors to restructure finances, can  allow you to retain property to run your business, give you time to sell unnecessary assets, modify payment terms on secured debts and discharge debts you cannot pay over the term of the plan.

Some small businesses may not be eligible for Chapter 13; however almost anyone can file for Chapter 11 Bankruptcy.

Chapter 13 Eligibility

  • Available only to individuals with regular income
  • Sole proprietorships
  • Corporations, partnerships and other entities are not eligible for Chapter 13 relief
  • Subject to specific debt limitations

Chapter 11 Eligibility

  • Individuals, limited liability companies, corporations, proprietorships and joint ventures are eligible for Chapter 11
  • There are no debt or income limitations

Major differences between Chapter 13 & Chapter 11 for small business owners:

  • There are more exceptions to discharge under Chapter 11 than Chapter 13.
  • Unlike Chapter 13, Chapter 11 does not require individual debtors to turn over their disposable income to a trustee. The total value of the debtor’s plan payments, however, must equal at least the amount of his or her disposable income over a five-year period.
  • The commitment period in Chapter 13 cases can be shortened if all unsecured creditors are paid in full; however, the plan cannot be extended over five years.
  • There is no set time limit for the duration of a Chapter 11 case.
  • During a Chapter 13 “commitment period” the debtor must turn over all of his or her disposable income to the Chapter 13 trustee for distribution to creditors.
  • There are special provisions which streamline and expedite Chapter 11 cases involving small business debtors.

Not sure which bankruptcy plan is best for your small business? Contact Cossitt Law at (406) 752-5616, we have the experience and expertise to make the process as painless as possible.

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