Bankruptcy for sole proprietorships

On Behalf of | Jul 7, 2021 | Personal Bankruptcy

Arkansas sole proprietorships that need to declare bankruptcy will face different challenges than other businesses. These filings can be especially complex if the owner wishes to keep operating the business while the bankruptcy is pending. The issue is that the sole proprietorship is the same thing as the owner him or herself.

Chapter 7 and 13 options are always available

Provided the legal requirements are met, sole proprietorships can still qualify for the protection of bankruptcy laws. Chapter 7 and 13 bankruptcy filings are always an option for a sole proprietorship. However, a Chapter 7 filing will, essentially, wipe the business out since it is a liquidation proceeding. Chapter 13 will provide protection from debt while it is being restructured, but the filing takes time, and the debt must still be repaid.

Chapter 11 helps, but it presents issues

Filing for Chapter 11 is often the most viable option for a business. The fact that this is the same entity as the owner means that the owner may be required to liquidate his or her personal assets as part of the filing. This is something someone may be hesitant to do, making this option more difficult. However, Chapter 11 bankruptcy allows the business to keep operating as a going concern while the filing is going through the court system. This is often the best option for an owner who has gotten into financial trouble but wants to keep his or her business.

Given the complexity of these issues, you should consult a personal bankruptcy lawyer if your business is experiencing serious financial issues. An attorney could advise you about bankruptcy options and which one may work best for you. Given your personal involvement as the sole proprietor and your desire to protect your assets, legal help is a must.