Yes. If you are a sole proprietor in Chino, you can usually keep your business open while you are in Chapter 13 bankruptcy. Chapter 13 lets you stay in control of day-to-day operations, stop creditor collection right away, and repay what you can afford over three to five years using income from your business. Law Offices of Terrence Fantauzzi helps small business owners in Chino and throughout the Inland Empire use Chapter 13 to protect both their livelihood and their personal finances.
Who Can Use Chapter 13 to Keep a Business Running?
Chapter 13 is available only to individuals, which means it works best for sole proprietors. If you run your business under your own name or a “doing business as” name, the law treats your business debts and your personal debts as the same, and Chapter 13 can address both in one case.
Corporations, LLCs, and partnerships cannot file Chapter 13 themselves. Those businesses usually look at Chapter 7 or Chapter 11 instead. However, an owner who personally owes business debts, such as a loan they guaranteed, may still be able to use Chapter 13 for their own obligations.
Chapter 13 also has debt limits. If your secured or unsecured debts are above those limits, you will need to consider other options. An attorney can review your numbers to confirm whether you qualify.
How Does Chapter 13 Let You Keep Your Business Open?
Chapter 7 often requires a trustee to sell non-exempt assets, which can force a business to close. Chapter 13 works differently. You keep your property, including equipment, tools, inventory, and vehicles you use for work, and you repay creditors through a court-approved plan.
During your case:
- You continue running your business and making operating decisions
- Your plan payments come from your business profits and any other household income
- A Chapter 13 trustee oversees the plan and distributes payments to creditors
- You will usually need to provide regular reports on business income and expenses
Because you stay in control, you can keep serving customers, paying employees, and earning the income that funds your plan.
What Happens to Creditors When You File?
Once you file, the automatic stay goes into effect. This court order requires creditors to stop most collection actions immediately, including:
- Collection calls and demand letters
- Lawsuits over unpaid business debts
- Bank levies that could freeze your operating account
- Wage garnishments and many judgment enforcement efforts
- Repossession of business vehicles or equipment
For a small business owner, this break can be the difference between closing and recovering. It gives you time to stabilize cash flow and build a realistic repayment plan.
What Business Debts Can Chapter 13 Help With?
Chapter 13 can address many common small business debts, including:
- Business credit cards and lines of credit
- Unpaid vendor and supplier invoices
- Past-due equipment loans and business vehicle loans
- Certain tax debts, which can be repaid over the life of the plan
- Personal guarantees tied to business obligations
Some debts, such as recent tax debts and payroll taxes, must generally be paid in full through the plan. Others, such as credit cards and vendor bills, may only receive a portion of what is owed. At the end of the plan, most remaining unsecured balances are discharged.
You can also use Chapter 13 to catch up on missed payments for property you need, such as a work truck or equipment, so you can keep using it.
What Do You Need to Keep Your Business Operating Smoothly in Chapter 13?
Staying open during Chapter 13 takes organization. To give your case the best chance of success, plan to:
- Keep business and personal finances clearly separated
- Maintain accurate records of income and expenses
- Stay current on new tax obligations, including estimated taxes
- Carry required business insurance
- Make every plan payment on time
The court and trustee expect your business to produce enough income to support the plan. Strong records make it easier to show that your plan is realistic.
Is Chapter 13 Right for Your Chino Business?
Chapter 13 may be a good fit if your business is still bringing in steady income but debt payments are making it impossible to stay afloat. It can also be the right choice if you have assets you want to protect or income too high to qualify for Chapter 7.
If your business is no longer viable, Chapter 7 may be a better way to wind down operations and get a fresh start. Our small business bankruptcy team can walk you through both options and help you choose the one that fits your goals. You can also learn more about how a repayment plan works on our Chapter 13 bankruptcy page.
Talk to a Small Business Bankruptcy Attorney Serving Chino
Debt does not have to mean the end of the business you have worked hard to build. Chapter 13 may let you keep your doors open, stop creditor pressure, and pay down debt on terms you can manage.
To find out whether Chapter 13 can help your Chino business, contact Law Offices of Terrence Fantauzzi at (909) 552-1238 today.
