Consumers Who Own Small Businesses and Want to File for Bankruptcy

There are many small business owners in Oak Park and throughout the Chicago area. Yet running a small business can be extremely difficult and complicated, especially a business in a field or industry that has been struggling since the start of the pandemic. In most circumstances, small business owners who are having difficulty repaying business debts are also struggling with their debts and finances as consumers, and they may be considering bankruptcy. If a consumer owns a small business and wants to file for bankruptcy, what does that consumer need to know? Our Oak Park bankruptcy lawyers have some information and tips to help.

Consumers Who File for Bankruptcy and Own Sole Proprietorships Will Also be Filing for Business Bankruptcy

If you are planning to file for bankruptcy because of your consumer debt, or you are planning to file for bankruptcy largely because of your business debt, the distinction will not matter too much under U.S. bankruptcy law if your business is structured as a sole proprietorship. Having debts that are primarily linked to your business may provide some benefits in your bankruptcy case, and owning a sole proprietorship can have some benefits in terms of the type of bankruptcy you can file for, we will explain below.

However, you should know that both you and your business will be filing for bankruptcy if you own a sole proprietorship. In other words, you and your business are technically the same entity, so you cannot file for bankruptcy as a consumer and leave your business out of the bankruptcy case or vice versa.

Chapter 13 Bankruptcy May be Possible for a Sole Proprietor

While most business owners cannot file for Chapter 13 bankruptcy, since sole proprietorships and the consumer who owns them are one and the same (i.e., there is no distinction between the business and the owner), it may be possible to file for Chapter 13 bankruptcy if you own a sole proprietorship. With a Chapter 13 bankruptcy, similar to a Chapter 11 bankruptcy, you can reorganize debts and keep your business open for the lower fees associated with a Chapter 13 bankruptcy as opposed to a Chapter 11 bankruptcy.

Small Business Owners May Not Need to Pass the Means Test if a Majority of Debts are Business Debts

Generally speaking, businesses do not have to pass the means test in order to qualify for Chapter 7 bankruptcy, but most consumers do. If a sole proprietor is filing for bankruptcy, it may be possible to avoid having to pass the means test. A bankruptcy lawyer can assess your case and provide you with more information about whether this is an option for you.

Contact Our Oak Park Bankruptcy Attorneys for More Information

If you are struggling with consumer debt and you also own a small business, an experienced Oak Park bankruptcy lawyer at our firm can provide you with more information about filing for bankruptcy in Illinois. The type of bankruptcy you file for will depend on a number of factors, including your debt amounts and income, the structure of the business you own, and more. Do not hesitate to get in touch with our firm to find out more about how we can help you with your bankruptcy case. Contact the Emerson Law Firm today for more information.


See Related Blog Posts:

Mistakes to Avoid in Your Consumer Bankruptcy Case

CFPB Considers Banning Medical Debt From Credit Reports

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