If you are struggling with your business debt, you are not alone. Millions of Americans are still recovering from the economic effects of the COVID-19 pandemic, especially those who have small businesses. If you want protection from business debt liability, you should consider filing for bankruptcy. To eliminate your debts, you can either file for personal or small-business bankruptcy, whichever suits your needs best.
Business debts are not necessarily the owner’s debts, as a business is a separate legal entity. However, they can be your debts if you signed a personal guarantee or are the only business owner. If this is your case, you can eliminate your debts by filing for Chapter 7 or Chapter 13 bankruptcy. You can choose either of those options depending on your income level and your overall circumstances.
· Chapter 7 bankruptcy
If your income level is lower than Florida’s median, you can file for Chapter 7 bankruptcy. Chapter 7 bankruptcy will discharge most of your debts, but you will need to sell some property to repay your creditors. You may be able to keep some property, like your car or house, if their worth is below Florida’s exemption limit.
· Chapter 13 bankruptcy
If your income is higher than the state’s median, you can file for Chapter 13 bankruptcy. However, your unsecured debts must be less than $394, 725 and your secured debts less than $1,184,200. In Chapter 13 bankruptcy, you will need to repay your creditors within three to five years. This option may benefit you if you want to keep your property and believe that you will pay your debts in the future.
After you file for bankruptcy, you may still operate your business. It will all depend on whether you still have the means to do so.
Another option to relieve your business debts is to file for Chapter 11 bankruptcy. Usually, only big corporations file for this type of bankruptcy, but it is possible for small businesses, too. If you file for Chapter 11 bankruptcy, you will have to restructure your business and organize your debts. Chapter 11 bankruptcy’s main goal is to reorganize your debt to make your business profitable rather than eliminating your debts. You’ll need to renegotiate leases and contracts and discharge or partially pay your debts.
Protecting your business
You must know that most small business Chapter 11 bankruptcies often get dismissed and converted into Chapter 7 bankruptcy. This happens when the court believes that the business in question won’t become profitable. Overall, Chapter 7 and Chapter 13 bankruptcies may be the best options if you are the sole proprietor of the business. Bankruptcy may seem risky, but ultimately it may be the best solution if you have overwhelming debts.