Using Chapter 13 to Reorganize Your Business Debts

People having serious debt problems may be able to reorganize their financial affairs using Chapter 13 bankruptcy. Chapter 13 allows a qualified debtor to restructure debts and repay some of the outstanding balances over a set period of years. Only an individual can file Chapter 13 bankruptcy. Businesses must resolve their debt problems by other means. However, your individual business-related debt can be part of a Chapter 13 repayment plan.

Chapter 13 is ideally suited for a sole proprietorship, in which there is no legal distinction between the owner and the business. The owner is personally responsible for any debts incurred, so business debts often can be reorganized under Chapter 13. If you are deep in business debt and you qualify for Chapter 13, the biggest benefit is that your business can remain in operation while it returns to profitability, as opposed to a Chapter 7 bankruptcy, in which the assets of the business may be liquidated.

In a Chapter 13, you repay all or a portion of debt, based upon your available disposable income. This is done through a payment plan that must be approved by the bankruptcy judge handing the case. Chapter 13 plans last three to five years. You must pay recurring fees to the U.S. bankruptcy trustee as well as court filing fees and other associated expenses. Throughout the process, you must be prompt in making all payments and in responding to any requests or orders from the bankruptcy trustee or the court. Once the repayment plan is complete, your remaining unsecured debt is discharged.

A business that is a separate entity is not eligible to file a Chapter 13 case. Companies having severe financial problems must seek bankruptcy protection under a different section of the Bankruptcy Code — Chapter 11. However, if you co-signed or personally guaranteed a business debt made by a separate legal entity, you could be on the hook to repay it, typically because the business has defaulted or even folded. If that occurs, you can include the business debt in your Chapter 13 plan.

Among the conditions of establishing eligibility for Chapter 13 is that you must have no more than a certain threshold of debt — including business debt — which is currently $2.75 million. You also must have steady disposable income in excess of allowable expenses. For more detailed information on discharging business debt through this remedy, consult with a qualified Chapter 13 bankruptcy attorney.

Jeff Field & Associates is one of the largest bankruptcy and debt relief law firms in Georgia, with six offices in the Atlanta, Marietta and Athens areas. Our lawyers have the knowledge, skills and experience to ensure that each client gets the highest level of representation. If you have personal and/or business debt issues, feel free to contact us online or call 404-381-1278 for an initial consultation.