Businesses in Florida can face overwhelming debt, and the owners might consider filing bankruptcy. Bankruptcy is a legal process that allows businesses to get relief from some debts. The process works similar to individual debtors with some variations.
Chapter 7 for businesses
Chapter 7 bankruptcy converts assets into a cash value and sells the assets through a trustee assigned by the court. The proceeds are distributed among creditors starting with secured debts, or debts with collateral.
Sole proprietorships and LLCs are the only business entities that can file Chapter 7, and they don’t get asset exemptions. It may work for service businesses or companies with few assets and without the funding to stay open, but businesses have to meet income requirements to file.
A sole proprietor can get business debts without personal guarantees discharged. However, filing in the name of the business doesn’t erase personal debt, and creditors can still repossess assets under a personal guarantee.
Chapter 11 and Chapter 13
Chapter 13 and Chapter 11 are reorganization bankruptcies that allow debtors to pay debts under a court-approved payment plan. This is an option for businesses with enough income to qualify and that want to remain open and keep assets.
The differences between Chapter 11 and Chapter 13 are the debt limit, who can file and the cost of filing. Chapter 13 is only for individuals with unsecured debts not exceeding $419,275; the limit increases to $7.5 million under Chapter 11. Filing for Chapter 11 typically costs more, but it streamlines the process for small businesses under Subchapter V.
Bankruptcy has many advantages for business owners deep in debt, but everyone’s situation differs. Since the laws are complex, a business owner considering bankruptcy should consult an attorney.