Whether you are a sole proprietor struggling with business in your own name, or the owner of a partnership, corporation or LLC with debt that may have been personally guaranteed, our business bankruptcy lawyers can help you get your business back on its feet, buy time to complete a sale of assets or the company itself, or give a fresh start to the company’s owners. Although sole proprietors can still use Chapter 13 bankruptcy as other consumers, business entities such as corporations and LLCs are not eligible, and can only reorganize in Chapter 11. However, Chapter 11 has many advantages in that it allows the company (or owners) to stay in business, stay in possession of their assets, and direct the execution of their own plan. These advantages often make it advantageous for individual debtors to choose Chapter 11 over Chapter 13.
The automatic stay, just as in a consumer case, is a court order which automatically takes effect when a new bankruptcy case is filed, and prevents collection activities such as foreclosures, evictions, and lawsuits. For a business, bankruptcy can buy the crucial opportunity to reorganize these debts and present a plan that will pay key creditors while discharging others.
Chapter 11 vs. Chapter 7 for Business Bankruptcy
Chapter 7 is only useful for a business entity in a very limited set of circumstances, because businesses cannot receive a discharge in Chapter 7, and there are no exemptions to allow the business entity or owners to retain any property from the business. However, corporations and LLCs can receive a discharge in a Chapter 11 bankruptcy reorganization, and this allows them to continue in business after the plan of reorganization has been confirmed. As long as the Chapter 11 plan pays creditors at least as much as they would receive if the business were liquidated, the company can retain assets and continue to operate the execute the plan.