Small business owners in Rialto facing overwhelming debt often have more than one bankruptcy option available to them. Choosing between Chapter 7 and Chapter 13 can feel overwhelming, especially when your livelihood and personal finances are both on the line. An experienced bankruptcy attorney can help you weigh the two options and determine which path offers the best outcome for your specific situation.
Understanding Chapter 7 for Small Businesses
Chapter 7 bankruptcy is often the faster of the two options, and it’s available to sole proprietors, partnerships, and corporations alike. Here’s what small business owners should know:
- A trustee takes control of non-exempt assets. The court appoints a trustee to review your business and personal assets, selling off anything that isn’t protected under California’s exemption laws to pay creditors.
- The process moves relatively quickly. Chapter 7 cases are often resolved within a few months, offering a faster route to debt relief than Chapter 13.
- It often means winding down the business. Because assets may be liquidated, Chapter 7 frequently results in the closure of the business, which makes it best suited for owners who are ready to move on and start fresh.
- Sole proprietors can protect certain exempt assets. If you operate as a sole proprietor, some personal and business property may be protected from liquidation, depending on your circumstances.
Understanding Chapter 13 for Small Businesses
Chapter 13 bankruptcy works differently and is only available to sole proprietors, since it requires an individual filer with regular income. Key features include:
- You keep your business and assets. Instead of liquidating property, Chapter 13 allows you to keep your business running while repaying debts over time.
- Payments come from business profits. The court orders a structured repayment plan, typically lasting three to five years, funded by the income your business generates.
- It offers more control over the outcome. Because you continue operating, Chapter 13 gives you more say in how the business moves forward, provided you can keep up with the repayment plan.
- It can address both business and personal debt. Since sole proprietors don’t have a legal separation between business and personal finances, Chapter 13 allows both types of debt to be addressed in a single repayment plan.
Which Option Makes Sense for Your Business?
The right choice often comes down to a few key questions: Do you want to keep the business running, or are you ready to close it? Can your business generate enough income to support a repayment plan? Do you have significant personal assets you’re trying to protect?
Business owners who are ready to move on from a struggling company, or whose debt has become unmanageable, often find Chapter 7 offers the fastest relief. Owners who have a viable business and steady income, and who want to keep operating while catching up on debt, often find Chapter 13 to be a better fit.
Get Guidance from an Experienced Bankruptcy Attorney
Choosing between Chapter 7 and Chapter 13 is a significant decision that can shape the future of your business. At Law Offices of Terrence Fantauzzi, we help Rialto small business owners evaluate their options and choose the path that best protects their financial future. Call (909) 552-1238 today to schedule a consultation and learn more about which bankruptcy option may be right for your business.
