As a small business owner in Florida, you understand the risks of putting everything on the line to ensure that your company can thrive. Unfortunately, the chances of a small business making it past five years are not too high. When they run into trouble, business owners will often take out additional business loans or even use their own funds to keep the company afloat. However, at some point, the inevitable occurs, and funds simply run out. In this case, the only option left involves bankruptcy.
Three types of small business bankruptcy
When filing for bankruptcy, there are three routes a business owner can take depending on their business structure. If you’re a sole proprietor, the route provided to you by an attorney is likely to involve Chapter 13. This type is a reorganization bankruptcy. Those in a partnership or corporation will usually face Chapter 7 or Chapter 11 bankruptcy. The following includes a list of these three chapters and their purpose:
- Chapter 13: Adjustment of debts
- Chapter 7: Liquidation
- Chapter 11: Business reorganization
In 2019, U.S. Congress created a new subchapter of Chapter 11 through the Small Business Reorganization Act. Subchapter V (as it’s called) allows companies that want to stay open (partnerships/corporations) to use this new avenue to both remain open and pay less toward their debt. This allows small business owners to restructure their debt without the stress of having to pay large amounts each month.
The bankruptcy laws are quite complex, and, of course, ensuring that you fill out all forms correctly is in your best interest. To accomplish this, it may be wise to bring on an attorney with experience in bankruptcy. Doing so may allow you to avoid costly legal mistakes.