Small business bankruptcy is a process in federal court designed to help a person’s business eliminate or repay its debt under the protection of the bankruptcy court. Depending on the type of bankruptcy petition filed, the small business bankruptcy is described as either ”liquidation” or  “reorganization.”

There are three types of bankruptcy proceedings for small businesses. The structure of a business will determine which bankruptcy proceeding the business owner will file under. 

A sole proprietorship is a legal extension of the owner because the owner is responsible for all assets and liabilities of the business. For a sole proprietorship, a business owner can file bankruptcy under Chapter 7, Chapter 11, or Chapter 13.

Because a corporation or partnership is classified as a legal entity that is separate from its owners, it can file for bankruptcy protection under Chapter 7 or Chapter 11 only at the direction of its members or directors.   In other words, a corporate resolution must be made in order for a corporation to file any style of bankruptcy.

Attorneys for Small Business Bankruptcy

in Plano, TX

Businesses bankruptcies are most often filed under Chapter 11, however, an individual that owns a sole proprietorship can file a business case under Chapter 13. These types of bankruptcy cases can include any matter in which the debtor was engaged in business before filing. Special rules apply for a small business Chapter 11 reorganization case. 

We represent clients in bankruptcy courts throughout the greater Dallas-Fort Worth area including in the US Bankruptcy Court for the Eastern District of Texas in Plano, TX.  We also represent clients in the Northern District of Texas at the Earle Cabell Federal Building in Dallas. 

A business bankruptcy attorney in Plano, TX, can help you decide which type of bankruptcy you should file or whether you should file for bankruptcy at all. Small business owners should consider all of their options before filing for bankruptcy. If you are a small business owner in Dallas, TX or the surrounding area, then contact an experienced attorney in Plano, TX, at Littlefield Law Firm.

Call us at (972) 812-0900​ to discuss your case.

Small Business Bankruptcy

Business Bankruptcy under Chapter 7

According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, 66% of small businesses fail in their second year, 50% of small businesses fail in their fifth year, and 30% of small businesses fail in their tenth year. For a business that has no future because it is not feasible to restructure the debt, or the business has no substantial assets, the Chapter 7 bankruptcy may be the best choice.

The Chapter 7 Business Bankruptcy process consists of liquidation rather than reorganization. In these cases, the bankruptcy court appoints a trustee after the bankruptcy petition is filed. The trustee takes possession of any non-exempt assets of the business and distributes proceeds from the sale of those assets to the creditors. After the proceeds are distributed, and the trustee is paid, the sole proprietor receives a “discharge” at the end of the bankruptcy case.  Note that only a sole proprietor can claim exemptions.  Partnerships, LLCs and corporation cannot claim exemptions against their assets.  Therefore those non-exempt assets will be sold to pay the debts of the company.

The discharge means that the owner of the business is released from any other obligation for the debts. A discharge is not available for a partnership or a corporation.

Personal Bankruptcy under Chapter 13

Although the Chapter 13 bankruptcy is a reorganization bankruptcy typically reserved for consumers, it can be used for sole proprietorships. Under Chapter 13, the sole proprietor in the bankruptcy action can file a repayment plan with the court explaining how the debts will be repaid.

When you own a sole proprietorship, your assets are mixed in with the business’s assets, so filing a Chapter 13 bankruptcy may be the only way to avoid losing your home.