Small Business Bankruptcy

Opening a small business is as exciting as it is terrifying. There are countless risks, and it requires investing a significant portion of your own funds, not to mention the level of time and energy required to cultivate a thriving enterprise. Unfortunately, even with the best of ideas and a solid work ethic, many small businesses fail. For example, nearly 60 percent of restaurants fail within the first year, and a staggering 80 percent close by their fifth year. If your small business has been losing money and is on its last legs, you are far from alone.

There may be hope for your business yet. Filing for small business bankruptcy may allow your growing business to get out from under crippling debt, letting you either keep your business afloat through reorganization or reinvest your money in another venture. If you are going to close either way, filing for the proper bankruptcy will allow you to preserve as much of your investment as possible and help you avoid personal liability for business debts. The small business bankruptcy attorneys at Kaniuk Law understand the struggle of small business ownership, and we know how to best evaluate your options for financial relief.

Small Biz Bankruptcy

Types of Small Business Bankruptcy

There are a few different types of bankruptcy that small business owners can file. Each carries its own advantages and drawbacks, and each may be appropriate depending on the specifics of your business and financial situation. It is vital that you consult with a knowledgeable and experienced small business bankruptcy lawyer before filing for bankruptcy to ensure that you choose the best form of bankruptcy and proceed in the manner most advantageous to you and your company.

Chapter 7 for businesses

Chapter 7 bankruptcy may be filed by either individuals or business entities, such as corporations and partnerships. Chapter 7 involves liquidating the business assets, which all become part of the bankruptcy estate, and using the proceeds to pay back as much of the company’s unsecured debts as possible. If you personally guaranteed debts of your business, consult with a small business bankruptcy attorney before pursuing Chapter 7 bankruptcy.

Chapter 13 for individual business owners

Chapter 13 bankruptcy is technically only available to individuals, meaning that your small business cannot file for Chapter 13 bankruptcy. However, there is a bit of a workaround: If you own a business as a sole proprietor, then you are essentially indistinguishable from the business. You are personally responsible for the business debts already. You then have the option to file for a Chapter 13 bankruptcy, which involves restructuring your debts into a repayment plan to be repaid over a three or five-year period. Your other, non-business assets (property and income) are subject to the bankruptcy, as this would be an individual filing. You can use Chapter 13 to protect exempt business property and continue to operate even while the bankruptcy is ongoing.

Chapter 11 for businesses

Chapter 11 bankruptcy allows a corporation or partnership to reorganize its debts to continue operating. Additionally, in certain cases, an individual business owner whose debts exceed the limits set by Chapter 13 might be able to file under Chapter 11. Like Chapter 13, Chapter 11 involves restructuring debt into a more feasible payment plan.
Chapter 11 allows a business to work with creditors to structure business debt to pay back business debt over time while continuing to conduct business. Creditors are prohibited from seizing assets or suing the company until the bankruptcy is completed, at least not without court approval. The business is beholden to the court before making significant financial decisions as well. Chapter 11 bankruptcy tends to involve intense negotiations with creditors, which is one of the many reasons it is important to have a savvy and effective small business bankruptcy attorney in your corner.

Subchapter V of Chapter 11 is a newer subsection in the bankruptcy code – its purpose is to create a faster and less expensive Chapter 11 reorganization path for small business debtors. 

To be eligible for a Subchapter V, a debtor (entity or individual) must be engaged in commercial activity and total debts (secured and unsecured) must be less than $2,725,625, with at least half of that debt being from business activity. The debtor’s principal activity cannot be a single-asset real estate operation. If the debtor does not elect to proceed under Subchapter V, regular Chapter 11 rules will apply. 

A trustee will be assigned (the debtor must pay the trustee) and acts more like an advisor – facilitating the development of a consensual reorganization plan, appearing at major hearings, and ensuring the debtor makes timely payments under the plan. 

To confirm a plan, the court must find (1) the debtor can make all payments under the plan OR (2) there’s a reasonable likelihood that the debtor will be able to make the payments under the plan and the plan contains remedies to protect the creditors if the payments are not made as proposed. 

With a consensual plan, the debtor will receive a discharge at confirmation. Without a consensus, the debtor will receive a discharge when all plan payments are completed. 

How is a Subchapter V different than a Chapter 11?

Get Help from a Seasoned Small Business Bankruptcy Lawyer

If you are having serious financial trouble, do not wait until the creditors are banging down your door, and don’t torture yourself with sleepless nights filled with worry and anxiety. Schedule your free consultation to find real solutions and effective, lasting debt relief.

ABOUT KANIUK LAW OFFICE

Ronald Scott Kaniuk, Esquire, is the founder and principal attorney at Kaniuk Law Office. Ron Kaniuk grew up in Long Island, New York, and has been a full-time resident of the Boca Raton/Delray Beach, Florida, area since 2008.

After law school, Ron served as a Law Clerk to the U.S. Bankruptcy Judge in Brooklyn, New York, and then worked for law firms in Long Island and Manhattan, New York, before moving full-time to Florida. He has extensive experience representing individuals and closely-held family businesses, homeowner/condominium associations, direct private lenders and local/regional banks and financial institutions. Bankruptcy experience includes representation of individual and corporate debtors, creditors, trustees and other parties-of-interest in bankruptcy proceedings.

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