Types of Bankruptcy for Small Businesses in North Carolina

 Posted on August 05,2024 in Bankruptcy

As a small business owner, getting yourself out of a financial mess can be challenging. Understanding your options, particularly when it comes to bankruptcy, is helpful for making informed decisions about your company’s future. A North Carolina lawyer can help you understand the different types of bankruptcy for small businesses and their implications and help you determine the best option for your situation.

Chapter 7 Bankruptcy to Seek Liquidation

A Chapter 7 bankruptcy, often called "liquidation bankruptcy," is one option for small businesses in North Carolina. In this process, a trustee is appointed to sell the business’s assets and distribute the proceeds to creditors. Both sole proprietorships and corporations can file for Chapter 7, but corporations will not receive a discharge of debts.

The Chapter 7 process is relatively quick, usually taking three to six months to complete. It eliminates most unsecured debts and allows for a fresh start. However, business operations typically cease, and you will lose your business assets. Filing for Chapter 7 will also significantly damage your credit score.

Chapter 11 Bankruptcy to Reorganize Your Debts

Chapter 11 bankruptcy is designed to allow businesses to restructure their debts and continue operations. This option is available to corporations, partnerships, and sole proprietorships. In Chapter 11, the business proposes a reorganization plan to pay creditors over time while continuing operations.

One of the main advantages of Chapter 11 is that the business can continue operating. It also allows leases and contracts to be renegotiated, potentially allowing the company to emerge as a stronger, more financially stable entity. However, the Chapter 11 process is complex, expensive, and time-consuming, often taking several years to complete. It also requires detailed financial reporting and court oversight.

Chapter 13 Bankruptcy for Debt Adjustment

While primarily designed for individuals, Chapter 13 bankruptcy can be an option for sole proprietors. Here is what you need to know about this type of filing:

• Process: The business owner proposes a plan to repay all or part of their debts over three to five years.

• Eligibility: Only available to sole proprietors, not corporations or partnerships.

• Debt Limits: As of 2023, secured debts must not exceed $1,395,875, and unsecured debts must be less than $465,275.

• Benefits: Ability to keep personal and business assets while catching up on missed payments.

• Limitations: Only suitable for smaller businesses with manageable debt levels.

Choosing the Right Option

Determining the most appropriate type of bankruptcy for your small business depends on various factors, including:

• Business Structure: Your options may be limited based on whether you are a sole proprietor, partnership, or corporation.

• Financial Situation: Consider your debt level, asset value, and income potential.

• Long-term Goals: Decide if you want to continue operating the business.

• Personal Liability: Understand how each option affects your personal assets and liabilities, especially if you have given personal guarantees for business debts.

Secure Your Business’s Future With a Charlotte, NC Bankruptcy Lawyer

Bankruptcy does not have to mean the end of your business dreams. With the help of a Mecklenburg County, NC bankruptcy attorney, it can be a stepping stone to a stronger financial future. Call Blossom Law PLLC at 704-256-7766 to schedule your complimentary consultation today.