Longmont Chapter 13 Lawyer
Solutions for Sole Proprietors in Boulder County and Beyond
If you are a small business owner drowning in debt, you have options. These include Chapter 7 and Chapter 11. Chapter 13 is a bankruptcy option that is typically used by individuals and couples who do not qualify for, or do not want to use, Chapter 7. However, sole proprietors who are personally responsible for business debt can use a Chapter 13 bankruptcy for their personal and business case.
To understand all your options and make an informed decision about the type of debt relief that is best for your small business, consult with Business Bankruptcy Solutions. I, Patrick O’Malley, have designed my firm to serve small business owners because I have half a century’s worth of combined legal and entrepreneurial experience. Lawyer by training and entrepreneur by nature, I understand the stress you are experiencing from your business debts. I want to help you successfully navigate this crisis. My firm is here to help you understand and explore all of your options so you can make the best decision.
What Is Chapter 13 Bankruptcy, and Who Can File?
Chapter 13 is a less complex, less expensive version of Chapter 11. The case reorganizes debt into a repayment plan instead of selling assets to pay creditors, as in Chapter 7. Filers use Chapter 13 to retain their assets and terminate debts at the end of the payment plan.
Unfortunately, only individuals and sole proprietors can file Chapter 13. If you are a sole proprietor, you are personally liable for both your personal and business debts, and I can walk you through the Chapter 13 process if this is the best solution to your financial crisis. If you want to file bankruptcy as a business entity and not personally, you will need to use Chapter 7 or Chapter 11. That said, many of my business clients have personally filed Chapter 13, effectively freeing up their income to better support their business.
When Is Chapter 13 An Option for Small Business Owners?
Although Chapter 7 makes sense most of the time for most small business owners, there are times, when Chapter 13 makes more sense:
- The business owner makes too much to qualify for Chapter 7.
- They want to buy time until the business can get back on its feet.
- Retaining assets that would be lost in Chapter 7
Debt cramdown and lien stripping are dimensions of retaining assets. When an asset is worth less today than the debt that is still owed on it, Chapter 13 reduces the debt on that asset, all the way down to today’s fair market value. The fair market value then becomes the amount that must be repaid in the payment plan. The leftover difference becomes unsecured debt and is usually discharged at pennies on the dollar in the payment plan.
How Does Chapter 13 Work for Sole Proprietors?
If you are filing as a sole proprietor, Chapter 13 will permit you to remain in business while you repay your debts. It allows you to retain most of your assets, they will not be sold. Under Chapter 13, you will submit a reorganization plan to the bankruptcy court for approval. Your plan will delineate how you will repay all or a portion of your personal and business debt in three to five years while you continue to operate.
When creating your repayment plan, you may be able to negotiate with creditors to reduce your debt and take other steps to financially streamline. While not all forms of debt can be eliminated through bankruptcy, most filers use the multi-year plan to catch up on priority debts like mortgages, vehicle loans, taxes, and more. You make monthly payments to the bankruptcy trustee, who then distributes it to creditors.
How much you will need to pay each month is dictated by the operating profits and disposable income. Priority debts will be paid in full, things like alimony, child support, legal fees, taxes, and more.
Eligibility for a Chapter 13 bankruptcy filing is based on debt limits. Your total unsecured and secured debt must not exceed $1.6 million. As with all bankruptcy cases, the court issues an automatic stay as soon as you file. This stops creditors from attempting to collect from you. They will only be paid through the court.
Can an LLC File for Chapter 13?
A business entity cannot file Chapter 13 (it would use Chapter 11), but a small business owner can file a personal Chapter 13 and may achieve many of the same benefits, like eliminating their personal debts. Filing a personal Chapter 13 does not have any effect on contracts and debts that are, either in whole or in part, the responsibility of the LLC. So, a lease, for example, for which both the LLC and the owner are responsible, would still be enforceable against the LLC even after the owner is personally discharged. To get rid of the lease, the LLC in this case might need to file Chapter 7.
- Related: More About Chapter 13
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