What Type of Bankruptcy Should a Self-Employed Person File?

Clients have often come to our office seeking to file a business bankruptcy to eliminate debts from their small business or self-employment.  Often, a business bankruptcy is not necessary.  Instead, the clients are reminded that they probably signed personal guarantees for the business debt.  These personal guarantees make the client personally liable for the debt should the business fail to pay.

Filing Personal Bankruptcy on Business Debts

In those cases, we counsel the client to file an individual bankruptcy and list the business debt as well as any personal debt.  The client can then let the business administratively dissolve by not filing annual business reports with the secretary of state or they can file articles of dissolution.  If the client did not form a separate entity such as a corporation or LLC and just operated under their own name or fictitious name, then they also would file an individual bankruptcy.

In the rare case where a business would need to file a Chapter 7, it is often due to the need to orderly administer the sale substantial assets of the company.

Chapter 13 or Chapter 11

For a client wishing to continue to operate the business but to reduce debt or downsize, this is possible in both a Chapter 13 and Chapter 11.  A Chapter 11 is often much more expensive than a Chapter 13.  However, certain debt caps apply to a Chapter 13 and if the business is too large, a Chapter 13 may not be available.