Bankruptcy for Small Businesses
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If your small business is inundated with debt, you can file for Chapter 7, Chapter 13, or Chapter 11 bankruptcy. Before you decide on what type of bankruptcy to file, you need to determine if you should file a personal bankruptcy or a business bankruptcy.
If you are personally liable for your business's debts, you should probably file a personal bankruptcy. You are personally liable for business debt if your business is structured as a sole proprietorship or general partnership. Personal liability means that creditors can go after your personal assets (your income from another job, your home, or other property) if your business does not pay its bills. Most small business owners that file for personal bankruptcy choose Chapter 7 or Chapter 13. Rarely is Chapter 11 a good choice for small businesses.
If your business is structured as a corporation or LLC, the business is responsible for paying business debts, not you (although there are some exceptions which are covered in the articles below). If you want to file for bankruptcy, you'll have to do so on behalf of the business (this is often called a business bankruptcy). You can do so under Chapter 7 or Chapter 11 -- Chapter 13 is not available to business entities.
Read the below articles to determine if you are personally liable for your business's debts, decide if Chapter 7 or Chapter 13 is the better option, and learn about other issues related to filing bankruptcy for your business.
Business Bankruptcy Considerations: Getting Started
Here are some things to think about before you file for bankruptcy for your small business.
While chapter 7 is best for most businesses, chapter 13 can sometimes be the better choice. Start here to learn if Chapter 7 or Chapter 13 is better for your business.
If you’ve concluded that Chapter 7 bankruptcy may be in the cards for your small business, there are certain actions you should avoid taking. Otherwise you could harm your bankruptcy case.
If your business is a sole proprietorship, you must file for personal bankruptcy to rid yourself of business debt. Here are your options.
If you file personal Chapter 7 bankruptcy, the bankruptcy trustee may be able to close your business. Learn more.
Your Personal Liability for Business Debt
If you are personally liable for your business's debts, you'll have to file a personal bankruptcy (rather than a business bankruptcy) to get rid of them.
Whether you are personally liable for business debts depends, in large part, on the legal structure of your business.
Here are some common ways an owner of a corporation or an LLC might become personally liable for the business’s debts.
If your spouse is liable for your business debts, you might want to file a joint bankruptcy.
Chapter 7 Bankruptcy for Small Business Owners
Many small businesses can file for Chapter 7 bankruptcy.
If the majority of your debt is business debt, you don't have to take the means test to qualify for Chapter 7 bankruptcy.
Corporations and LLCs can file a business bankruptcy under Chapter 7.
Listen to the Podcasts on Business Bankruptcy
Listen to bankruptcy and credit expert, Stephen Elias, discuss the basics of bankruptcy for business owners and answer some of the most pressing questions.
Small Business Bankruptcy: Part 1
Part one of a two part series on Bankruptcy for Small Business Owners
Part one of a two part series on Bankruptcy for Small Business Owners
Small Business Bankruptcy: Part 2
Part two of a two part series on Bankruptcy for Small Business Owners
Part two of a two part series on Bankruptcy for Small Business Owners
Chapter 13 Bankruptcy for Small Business Owners
Learn how Chapter 13 works for your small business debt.
Chapter 11 Bankruptcy for Small Business Owners
Chapter 11 bankruptcy is rarely a good option for small businesses. Here's why.
Get Professional Legal Help
If you need an attorney to answer your questions or represent you, start here.
Get Help From Nolo's Bankruptcy Books
Bankruptcy for Small Business Owners: How to File for Chapter 7
With this book, you can assess the financial condition of your business, determine whether you should declare bankruptcy, and complete the bankruptcy paperwork.
With this book, you can assess the financial condition of your business, determine whether you should declare bankruptcy, and complete the bankruptcy paperwork.
The New Bankruptcy: Will It Work for You?
Is bankruptcy the right solution for your overwhelming debts? Pick the best strategies for your situation with the information and practical suggestions in this book by best-selling author Stephen Elias.
Is bankruptcy the right solution for your overwhelming debts? Pick the best strategies for your situation with the information and practical suggestions in this book by best-selling author Stephen Elias.
How to File for Chapter 7 Bankruptcy
The reliable, up-to-date information in this best-selling book will help you successfully complete your bankruptcy claim without breaking the bank.
The reliable, up-to-date information in this best-selling book will help you successfully complete your bankruptcy claim without breaking the bank.
Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time
This comprehensive guide explains the Chapter 13 process, from start to finish.
This comprehensive guide explains the Chapter 13 process, from start to finish.