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Business or personal? 3 types of small-business bankruptcy

You might have heard this before, but bankruptcy is not necessarily the end for your business. It is a period of financial restructuring — nothing more and nothing less.

How exactly you go about it has a major impact on the next few years of your life and your business operations. One of the most important choices you have to make is under which chapter of the U.S. Bankruptcy Code you intend to file.

Chapter 7

Chapter 7 is usually a personal liquidation bankruptcy. It might not be the best choice for your small business, but it depends on the circumstances.

In Chapter 7, you would look at your New Jersey and federal exemptions, applying them to the property you own. Remember that, as a sole proprietor of a business, your company’s assets are probably your own.

You would work with a court trustee to determine whether your exemptions cover your property. Then, you would proceed to complete your filing and resolve your debt.

Chapter 13

The other common type of personal bankruptcy is Chapter 13. Believe it or not, this could be an acceptable financial solution for your small business.

If you are currently generating revenue or income of some sort, you could potentially design a repayment plan under Chapter 13  That could allow you to maintain operations while repaying your debt on new terms. Again, a court trustee would work with you, this time to establish a viable plan.

Chapter 11

Chapter 11 would be a more complex process, at least from your perspective. This could be an option for certain types or sizes of businesses.

There are many differences between Chapter 11 and the other types of bankruptcy, but one of the most important is that you would serve as your own trustee. It would be your responsibility to establish a plan that would work going forward for both you and your creditors.

As attorneys, we help individuals file for bankruptcy under the U.S. Bankruptcy Code, creating clear, solid plans to financial independence. We also stick with our clients, providing advice, services and guidance as their situations and cases develop.


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