No one is immune to financial problems. Whether you’re a recent college graduate, a professional with an extensive career, or even the owner of a company with hundreds of employees, debt can become quite overwhelming and may have you thinking about ways to get rid of it. In many cases, filing for bankruptcy could help you do just that while allowing you to rebuild your finances from the ground up.
However, when dealing with bankruptcy, you should keep in mind that personal bankruptcy and business bankruptcy are two significantly different processes, even though they share some similarities.
Here, you will see a comparison between personal bankruptcy and business bankruptcy and learn the details about the bankruptcy code chapters that are used in each case.
If you don’t own a business or are the owner of a small business and feel like you are sinking into an endless pile of debt, personal bankruptcy will give you a chance to free yourself from most of it. The two most commonly used personal bankruptcy chapters are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common of all bankruptcies and is usually the quickest alternative. You can discharge most of your debts through this bankruptcy chapter by selling your non-exempt assets. If you want to regain control of your finances in a matter of months, and you don’t mind having to sell a few things to do so, this may be the ideal chapter for you.
However, not everyone can file for Chapter 7 bankruptcy. To do so, you will have to pass a means test that will benchmark your income against the state median. If you are below the average, you will automatically qualify.
On the other hand, if your income is too high to qualify for this bankruptcy chapter, you will have to consider other options, such as Chapter 13.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as wage earner’s bankruptcy, will help you clear your debts without having to sell your assets. To do so, you will need to create a 3- to-5-year repayment plan with the help of your bankruptcy attorney. Once you comply with the plan, the remainder of your debts will be discharged.
This bankruptcy chapter, although it has its advantages, is considerably complex. If you are thinking of using this option, be sure to consult with a legal professional before proceeding.
Personal bankruptcy for small business owners
If you are the sole owner of your business, your finances and your business finances will be viewed as the same in your bankruptcy filing. Therefore, you can use Chapter 7 bankruptcy to discharge both your personal and business debts with a single bankruptcy case. Furthermore, if your business debts exceed your personal debts, you won’t even have to take the means test to qualify.
On the other hand, Chapter 13 bankruptcy can help you keep all of your business assets, as long as you are the sole proprietor. Other business entities, such as partnerships, corporations, or LLCs, are not eligible to file for Chapter 13 bankruptcy and must pursue other options.
If you are not the sole owner of your business, you will have to opt for corporate bankruptcy to eliminate your company’s debts. Large companies have two options when filing for bankruptcy: Chapter 7 bankruptcy and Chapter 11 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 corporate bankruptcy signals the end of your business. Through this option, all of your business operations will cease immediately, and a court-appointed bankruptcy trustee will liquidate (sell) all of the company’s assets to pay off debts.
Corporate Chapter 7 bankruptcy doesn’t grant a debt discharge, unlike its personal counterpart. It is simply not necessary. Once the business ceases to operate, there will be nothing of value left for creditors to collect.
Chapter 11 Bankruptcy
In Chapter 11 bankruptcy, the company doesn’t cease operations. Instead, it will be allowed to reorganize its debts in an effort to resume business operations in the future and restore the company’s financial health.
Chapter 11 bankruptcy gives large companies a fresh financial start. However, they must still meet their financial obligations to their creditors through a reorganization plan.
If your company needs time to recover from financial difficulties, and you want to continue running your business during the process, this may be the option you are looking for. However, you should keep in mind that chapter 11 is the most complex of all bankruptcy proceedings, and may need the help of a bankruptcy lawyer to navigate through it successfully.
Other key differences between business and personal bankruptcy
No means test needed
A significant difference between personal and business bankruptcy is that the latter does not require any type of means test to be filed. Companies will be free to file Chapter 7 or Chapter 11 bankruptcy whenever they deem that their debts have become too overwhelming.
In addition, businesses are free to cancel contracts with creditors, as long as it is financially favorable for both parties to do so. Individuals cannot do this with most of their financial commitments.
Should you work with a bankruptcy attorney near you?
Regardless of the type of bankruptcy, you plan to file, working with a bankruptcy attorney in Irvine ca , such as KT Bankruptcy Lawyer, could be an excellent idea. For personal bankruptcy, the lawyer will guide you through the process, helping you avoid common mistakes and advising you on how to get the fresh financial start you need.
On the other hand, if you are a business owner, working with an experienced attorney is critical to the future of your business. The attorney will evaluate your company’s financial situation and guide which chapter of bankruptcy will bring you the best results.
If you want to learn more about bankruptcy, consider calling a local bankruptcy attorney for a free consultation. You have nothing to lose and everything to gain!
Business name: KT – Tang & Associates Attorney AT LAW
Address: 9741 Bolsa Ave Suite 208, Westminster, CA 92683
Phone number: (855)-485-1991