Sole Proprietorships and Bankruptcy: What are the Options?

If you own a small business and you are having significant debt problems, you might be considering how bankruptcy laws could help you to get back on track with your business finances. In particular, given the ways in which the COVID-19 emergency has impacted small businesses in Chicagoland and across the country, many small business owners are struggling to keep their doors open, and some are considering the possibility of bankruptcy. For businesses that are structured as sole proprietorships, it is important to work with an Oak Park bankruptcy lawyer who has experience handling consumer bankruptcy cases because these bankruptcies ultimately will be personal bankruptcies.

Businesses that are sole proprietorships are in effect the same entity as the business owner. Accordingly, any debts of the business are also the personal debts of the business owner, and vice versa. This means that a sole proprietorship cannot, on its own, file for bankruptcy without affecting the personal finances of the owner. The following are the possible options for bankruptcy when you have a sole proprietorship.

Filing for Chapter 7 Bankruptcy and Closing Your Business

If you believe it is time to close your business because you cannot afford to pay your business debts and you do not expect your business to be able to make a profit in the coming months (or years), then you may be thinking about Chapter 7 bankruptcy. This is a type of liquidation bankruptcy in which all non-exempt assets will be liquidated, and you will be eligible to have the remaining dischargeable debts discharged.

It is important to keep in mind, however, that filing for Chapter 7 bankruptcy for your business means that you will also be filing for personal bankruptcy. Accordingly, all of your non-exempt personal assets will need to be liquidated as well, and you will need to qualify for Chapter 7 bankruptcy. If you have a sole proprietorship in addition to another job from which you earn a majority of your income (and you still have that other job), Chapter 7 bankruptcy likely is not the right type of bankruptcy for you. You should find out about reorganization bankruptcy instead.

Chapter 13 Bankruptcy for a Sole Proprietorship

Chapter 13 bankruptcy is a type of personal bankruptcy for which most businesses are ineligible, but a business owner who owns a sole proprietorship can file for Chapter 13 bankruptcy. Chapter 13 bankruptcy can allow you to reorganize your debts, still make plans to close your business, and get back on track with the debts you owe.

Learn More From an Oak Park Bankruptcy Attorney

Bankruptcy laws are incredibly complex, and anyone who is considering consumer bankruptcy should hire an experienced Oak Park bankruptcy lawyer to assist with the process. Even making a minor mistake can affect your bankruptcy case and, in some situations, can impact your ability to have your debts discharged. One of the dedicated consumer protection advocates at our firm can tell you more about Chapter 7 and Chapter 13 bankruptcy for sole proprietors of a small business, and can help you to determine your eligibility. Contact the Emerson Law Firm to learn more about how we can assist you with your bankruptcy filing.


See Related Blog Posts:
Top Reasons to Hire a Lawyer for Your Bankruptcy Case
Are Consumer Bankruptcy Filings Problematically Low?




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