Bankruptcy Options for Restaurant Owners

Restaurant owners can use bankruptcy to discharge their debts and help maintain a business. Bankruptcy will discharge most of your debts, however, you will continue to be liable for court ordered payments and certain statutory debts.

Chapter 7

A restaurant owner who is operating as a sole proprietor can file for bankruptcy protection under Chapter 7. In a Chapter bankruptcy, the bankruptcy court will appoint a neutral trustee to administer the bankruptcy estate. The trustee will take over all the non-exempt assets of the debtor and sell them. The creditors will be paid from the sale proceeds. Once all the non-exempt assets are sold and the proceeds distributed amongst the creditors, the debtor will receive a discharge.

Chapter 13

A restaurant owner who is operating the business as a sole proprietor or an unincorporated business can also file for bankruptcy protection under Chapter 13. In a Chapter 13 bankruptcy, the debtor must submit a payment plan to the bankruptcy court specifying how he intends to pay off the debts. Once the bankruptcy court approves the plan, the debtor must make regular payments to the trustee who will then distribute the payments to the creditors.

The payment plan is generally three years, but in some cases, the bankruptcy court will approve a plan that is of five years. As a restaurant owner, filing under Chapter 13 is more beneficial than filing under Chapter 7 because the debtor in a Chapter 13 bankruptcy can retain all the assets if he continues to make regular payments according to the Chapter 13 payment plan. When the debtor makes all the payments under the payment plan, the debtor will receive a discharge.

Chapter 11

Chapter 11 bankruptcy is a form of reorganization. A restaurant owner can file for bankruptcy protection under Chapter 11 if the business is a sole proprietorship, partnership, limited liability company or a corporation. The debtor must submit a reorganization plan to the bankruptcy court. This plan must be approved by the bankruptcy court. In the plan, the debtor must specify how the business intends to repay the creditors. The reorganization plan can also provide for payment of the debts by liquidating the assets of the business. If the total debt of the restaurant is less than $2,000,000, the owner can file as a small business.

Getting Legal Advice

If you are a restaurant owner considering bankruptcy, consult with an experienced bankruptcy attorney. The attorney can review your circumstances and advise you on your best option.