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Small Business Owner Struggling with Bankruptcy

Bankruptcy For Small Business

Sometimes, just like individuals and large companies, small businesses can get in over their head and struggle with debt. Depending on certain circumstances, declaring bankruptcy for small business owners provides financial relief and opportunities to restructure.

When confronted with these situations, small business owners might find it best to consult with bankruptcy attorneys to determine which course of action is the right option. Law firms consider whether a business owner is liable personally for business debts, if the business will remain open, the total amount of debts owed, and other factors to make an informed decision. Business owners choosing to file for bankruptcy should work with legal counsel to discuss options thoroughly.

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What Are My Small Business Bankruptcy Options?

Small business owners may look to Chapter 11, Chapter 13, Subchapter 5, and other types of bankruptcies to pay off or be discharged from debts. Eligibility, repayments, and costs vary between bankruptcy types and debt settlements. Business owners may need to discuss bankruptcy basics with a lawyer to decide which option is best. This may include enrolling in bankruptcy credit counseling before filing.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is commonly filed by business owners who likely will be able to repay their debt to creditors and keep their business open. A Chapter 11 filing does not necessarily require complete asset liquidation. This makes it easier for businesses to continue operating and generate revenue to pay back lenders. Payment plans are agreed upon between debtors and creditors in bankruptcy courts with the assistance of skilled attorneys. Such repayment plans may extend up to 20 years or more.

Insolvent business owners detail a repayment plan to recover unpaid balances. The plan is presented to the creditors who then review it. If the creditors agree to the repayment terms, the plan is approved but the bankruptcy court. Chapter 11 repayment plan negotiations may take up to a full year to reach agreement and approval. Trustees are appointed under Chapter 11 filings to financially reorganize and keep the business running. A trustee may be the small business owner.

Subchapter 5 Bankruptcy

The Small Business Reorganization Act (SBRA) recently added Subchapter 5 (Subchapter V) to Chapter 11 of the U.S. Bankruptcy Code. Effective in early 2020, Subchapter 5 makes it easier and less expensive for small business owners to file Chapter 11 bankruptcy. With shorter bankruptcy deadlines and decreased fees, it can be faster to reorganize a business. For example, status hearings must be held within 60 days of filing, and reorganization plans must be filed within 90 of entry for relief. Repayment plans may even be granted a submission extension under special circumstances.

Negotiations between the insolvent business and creditors are more flexible under Subchapter 5. As well, Subchapter 5 allows for a private bankruptcy trustee to develop the reorganization plan between the debtors and creditors. Because the U.S. Trustee may not appoint a private trustee to oversee reorganization, repayment, and business operations, certain fees can be avoided.

Small Business Bankruptcy Meeting

SBRA And CARES Act

There is now a larger debt threshold for small business owners under the CARES Act amendment to the SBRA which was enacted in 2020. Small businesses may now file from $7.5M instead of $2.73M (the amount prior to the CARES Act). The debt threshold was increased due to complications from the coronavirus pandemic (COVID-19). The threshold returns to $2.73M in 2021.

The SBRA and CARES Act likely forecast less time for small business owners in bankruptcy court. Insolvent business owners also have less bankruptcy-related expenses and greater access to coronavirus emergency funding programs. Emergency financial aid is exempt from median income during repayment plan negotiations.

Chapter 13 Bankruptcy

Typically filed for by individuals with personal and credit card debts, small businesses may declare Chapter 13 bankruptcy under certain circumstances. Applicable to sole proprietorships as well, personal bankruptcy could be the best option for business owners meeting eligibility requirements.

Under Chapter 13 bankruptcy, debtors develop and submit a repayment plan to bankruptcy court and creditors, similar to Chapter 11 filings. Chapter 13 bankruptcy, however, bases repayment amounts on total business debts owed, business revenue, and the types of assets a business owner has. This particular type of bankruptcy is beneficial for small business owners who operate out of their home to avoid foreclosure proceedings. Owners who have overlapping personal and professional assets should discuss Chapter 13 bankruptcy for small businesses with their lawyers.

Ivey McClellan Is The Right Bankruptcy Law Firm For You

Small business owners seeking relief from debt need a dedicated and experienced team of bankruptcy attorneys on their side. Bankruptcy negotiations are complex and time consuming. We help clients submit the right paperwork and complete official bankruptcy forms to file correctly. By having a trusted attorney at your side, you can find financial relief through voluntarily filing for bankruptcy to restructure.

Ivey McClellan has the services and resources to help you file bankruptcy for your small business. Contact us today for a consultation to learn more about small business bankruptcy options.

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Greensboro

100 South Elm Street Suite 500
Greensboro, NC 27401
Phone: 336-274-4658
Fax: 336-274-4540

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551 Monroe Street
Eden, NC 27288
Phone: (336) 623-4600

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