There are many misconceptions about a business filing bankruptcy in Texas. For example, the business doesn’t always cease operation, as commonly believed. What happens to the business depends on the type of bankruptcy and the owner’s goals.
Chapter 7 bankruptcy for small businesses
Business bankruptcy works in about the same way as for an individual, but the discharge depends on how the owner files. Chapter 7 is commonly a better option for business owners who see no way of keeping their businesses open.
A sole proprietorship can discharge unsecured personal and business debt, such as passed due leases and utility bills and personal loans. Chapter 7 requires selling non-exempt assets, but exemptions may allow business owners to keep essential business tools. However, a service-based business, such as gardeners, may stay in business, because future services can’t be sold.
Filing on behalf of the business commonly won’t get the debts formerly discharged, but they can commonly skip the means test. Chapter 7 is rarely a good option for partnerships because they are still liable for debts and creditors can sue them. A trustee may also sue partners who have enough assets to pay a debt, and they may sue other partners.
Chapter 13 and Chapter 11
Owners who want to stay in business open have the option of Chapter 13, which allows them to repay debts. Chapter 13 commonly allows them three or five years to pay debts under a plan they submit for court approval. They don’t have to sell assets as long as they make payments to the trustee and pay the value of the asset.
Chapter 11 is similar to Chapter 13, allowing businesses to stay in operation, but it is complex and costly. A small business with high debt may qualify for Subchapter v, which makes the process simpler and faster.
Bankruptcy doesn’t have to be a negative thing for a business. However, the owner should seek financial advice before filing.