Chapter 13 vs Chapter 11 Bankruptcy: Which is Better for Small Business Owners?

What Small Business Owners Need to Know About Their Bankruptcy Options

Are you a small business owner facing financial difficulties and considering bankruptcy? Luckily, there are two common options available to you: Chapter 11 and Chapter 13 bankruptcy. But you may be wondering which type of bankruptcy is the best fit for your needs. Our lawyer at Kurland Law Group can help you understand Chapter 13 vs Chapter 11 bankruptcy for small business owners in Rockville, MD.

By understanding the nuances of Chapter 11 and Chapter 13 bankruptcy, you can make an informed decision about which route is best for you and your small business. Whether you’re looking to restructure your debts and keep your business afloat or simply need to discharge your debts and start fresh, there’s a bankruptcy option out there for you. 

Contact our bankruptcy attorney at Kurland Law Group today and let’s dive in and explore the world of bankruptcy for your small business together!

Why Do I Need a Bankruptcy Lawyer For Chapter 13 vs Chapter 11 in Rockville, MD?

A bankruptcy filing may be advantageous for small business owners who are drowning in debt and are unable to pay their creditors. But we also need to consider that there is a wide range of options under bankruptcy law. Small business owners can file for either Chapter 13 or Chapter 11 bankruptcy. But not everyone is familiar with or has an idea what Chapter 13 or Chapter 11, or even bankruptcy law is. 

It is in your best interest to talk and seek legal advice from our bankruptcy attorney at Kurland Law Group. Here are just a few of the ways our lawyers can help:

• We can provide you with the knowledge and experience necessary to help you navigate the complex legal landscape of bankruptcy.
• We can assist with the accurate and timely preparation and filing of these documents, ensuring that the case is handled properly.
• Our legal team can represent you during court proceedings as well as in negotiations and talks with creditors.
• We can help protect your rights and shield you against creditor harassment.
• We can offer advice about other alternatives you can consider such as debt negotiation or consolidation.

Our bankruptcy lawyer can offer crucial help and direction while you are going through the bankruptcy procedure and having financial difficulties. Reach out to our bankruptcy attorney at Kurland Law Group to learn more about your options. 

What are Chapter 11 and Chapter 13 Bankruptcy?

When it comes to bankruptcy, there’s no one-size-fits-all solution. Each type of bankruptcy has its own advantages and disadvantages, and what’s right for one person may not be the best choice for another. So when it comes to deciding between Chapter 11 and Chapter 13 bankruptcy, the answer isn’t necessarily which is better, but rather which is better for your specific situation.

Chapter 11 Bankruptcy 

Chapter 11 bankruptcy is a type of bankruptcy primarily designed for businesses that need to restructure their debts and reorganize their finances. It is often referred to as “reorganization bankruptcy” because it allows businesses to continue operating while they restructure their finances and pay off their debts. Chapter 11 bankruptcy can be filed by corporations, partnerships, LLCs, and individuals with high levels of debt.

When a business files for Chapter 11 bankruptcy, they become a “debtor in possession,” which means that they continue to operate its business while they develop and proposes a plan of reorganization. During this process, the business has the exclusive right to file a plan of reorganization for the first 120 days, which can be extended by the court if necessary.

Once the plan of reorganization is approved, the business can begin making payments to its creditors according to the terms of the plan. The length of the repayment plan can range from a few years to several decades, depending on the amount of debt and the ability of the business to generate revenue.

What are the Eligibility Requirements for Chapter 11 Bankruptcy?

Here are some of the factors that may be considered in determining eligibility for Chapter 11 bankruptcy:

1. Type of Debtor: Chapter 11 bankruptcy is available to businesses, corporations, partnerships, and individuals, but it is most commonly used by businesses.
2. Debt Amount: Chapter 11 bankruptcy is typically used by debtors with a high amount of debt, as it can be an expensive and time-consuming process.
3. Ability to Repay: In order to be approved for Chapter 11 bankruptcy, the debtor must demonstrate the ability to repay their debts over time through a reorganization plan. The plan must be feasible and must provide for the repayment of creditors.
4. Creditors’ Interests: The debtor must provide a plan that is in the best interests of their creditors. This may involve negotiations with creditors to modify the terms of their debts or reduce the amount owed.
5. Good Faith: The debtor must file for Chapter 11 bankruptcy in good faith and not as a means of delaying or avoiding payment to their creditors.

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy is a type of bankruptcy primarily designed for individuals or sole proprietors with regular income who are struggling with debt. It is often referred to as a “wage earner’s plan” because it allows individuals to reorganize their debts and repay creditors over a period of three to five years.

When an individual files for Chapter 13 bankruptcy, they must submit a repayment plan to the court that outlines how they will repay their debts. The plan must be feasible, meaning that the individual must have enough income to meet their monthly living expenses and make payments to their creditors according to the terms of the plan.

The length of the repayment plan can range from three to five years, depending on the individual’s income and the amount of debt they have. At the end of the repayment plan, any remaining unsecured debt (such as credit card debt or medical bills) may be discharged, meaning that the individual is no longer responsible for paying it.

What are the Eligibility Requirements for Chapter 13 Bankruptcy?

To be eligible for Chapter 13 bankruptcy, an individual must meet several requirements, including:

1. Regular Income: The individual must have a regular source of income, such as wages from employment, business income, or retirement income.
2. Debt Limits: The individual’s unsecured debts and secured debts must be within the allowed bankruptcy court limits. These limits are subject to change periodically.
3. Previous Bankruptcy Discharge: The individual must not have received a discharge in Chapter 7, 11, or 12 bankruptcy cases filed within the past four years or a Chapter 13 case filed within the past two years.
4. Tax Returns: The individual must have filed all required tax returns for the previous four years.
5. Credit Counseling: The individual must have completed credit counseling from an approved agency within 180 days before filing for bankruptcy.
6. Disposable Income: The individual must have enough disposable income to make the required payments under the Chapter 13 repayment plan. Disposable income is calculated by subtracting necessary living expenses from the individual’s income.

What are the Pros and Cons of Chapter 11 Bankruptcy for Small Business Owners? 

Small businesses facing financial difficulties may consider Chapter 11 bankruptcy as a way to restructure their debts and emerge as a stronger, more financially stable entity. While Chapter 11 bankruptcy can provide benefits to small business owners, it also has potential drawbacks that should be carefully considered before deciding to file. 

Advantages of Chapter 11 Bankruptcy

1. Business Continuity: Chapter 11 bankruptcy allows small businesses to continue operating while they reorganize their finances, which can help preserve jobs and maintain relationships with customers and suppliers.
2. Debt Restructuring: Small businesses can negotiate with creditors to restructure their debts, which may result in lower interest rates or longer repayment periods.
3. Control of the Business: Small business retains control of their operations and assets, unlike in a Chapter 7 bankruptcy where a trustee is appointed to oversee the liquidation of assets.
4. Court Protection: Chapter 11 bankruptcy provides small businesses with protection from creditors while they restructure their finances, which can help reduce the stress and pressure of dealing with collection calls and lawsuits.
5. Opportunity for a Fresh Start: Chapter 11 provides small businesses with an opportunity for a fresh start by eliminating some debts and restructuring others.

Disadvantages of Chapter 11 Bankruptcy 

1. Expensive and Time-Consuming: Chapter 11 bankruptcy is a complex and expensive process that can take months or even years to complete. The costs associated with filing for bankruptcy and hiring attorneys and other professionals can be significant.
2. Risk of Liquidation: While the goal of Chapter 11 bankruptcy is to reorganize the small business and repay creditors, there is always the risk that the court will order the liquidation of assets if a reorganization plan is not approved.
3. Court Oversight: The small business is subject to court oversight, which can limit its flexibility in making decisions and require it to provide regular updates and reports to the court and creditors.
4. Uncertainty: The outcome of a Chapter 11 bankruptcy is never certain, and there is no guarantee that the small business will be successful in reorganizing its finances and emerging from bankruptcy.

It is important for small business owners to carefully consider the advantages and disadvantages of Chapter 11 bankruptcy before deciding to file. Seeking the advice of our experienced bankruptcy attorney at Kurland Law Group can help make informed decisions about their financial future.

What are the Pros and Cons of Chapter 13 Bankruptcy for Small Business Owners? 

Chapter 13 bankruptcy is designed for individuals who have a regular income and can repay their debts over time. Small business owners who are sole proprietors or who operate as individuals may be eligible for Chapter 13 bankruptcy. Here are some advantages and disadvantages of Chapter 13 bankruptcy for small business owners:

Advantages of Chapter 13 Bankruptcy 

1. Repayment Plan: Chapter 13 bankruptcy allows small business owners to create a repayment plan that fits their budget and allows them to repay their debts over time.
2. Protection from Creditors: Filing for Chapter 13 bankruptcy provides small business owners with protection from creditors, including an automatic stay that stops collection actions.
3. Retention of Assets: Small business owners can retain their assets, including their business, while they work to repay their debts under a Chapter 13 bankruptcy plan.
4. Reduced Debt: Under a Chapter 13 bankruptcy plan, small business owners may be able to reduce the amount of debt they owe to creditors.

Disadvantages of Chapter 13 Bankruptcy 

1. Lengthy Process: Chapter 13 bankruptcy is a lengthy process that can take several years to complete, during which time small business owners must make regular payments to creditors.
2. Limitations on Business Operations: Small business owners must get court approval for major business decisions during the Chapter 13 bankruptcy process, which can limit their flexibility in running their business.
3. Credit Consequences: Filing for Chapter 13 bankruptcy can have a negative impact on small business owners’ credit scores, making it more difficult to obtain credit in the future.
4. Cost: Small business owners must pay for legal fees and court costs associated with filing for Chapter 13 bankruptcy, which can be expensive.

Before deciding to file for Chapter 13 bankruptcy, small business owners should carefully weigh the benefits and drawbacks. Seek legal guidance from our bankruptcy attorney in Rockville, MD can help small business owners make wise decisions for their business financial future. 

Call our Bankruptcy Attorneys for Small Business Owners in Rockville, MD Now!

Bankruptcy is a complicated and highly regulated legal process involving a debtor’s inability to pay their debts and efforts to obtain relief from their creditors. Small business owners who are drowning in debt and unable to pay their creditors may benefit from declaring bankruptcy. 

At Kurland Law Group, our lawyers can guide and help you determine the best course of action for your small business. We can also help determine all viable options to help you achieve financial freedom. 

Reach out to our trusted and reliable bankruptcy lawyers today to learn more about Chapter 13 vs Chapter 11 bankruptcy for your small business in Rockville, MD.