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The Difference Between Personal Bankruptcy and Business Bankruptcy

Post by Christopher Migliaccio

For those who seek relief from repaying debts that they have accrued, bankruptcy is one of the most effective ways to achieve this goal and move forward to financial stability. Depending on the chapter for which they file and their means of possible repayment, individuals either can set a realistic payment plan or even be entirely forgiven for what they borrowed.

On the same note, companies and organizations, although not living entities, are also provided the ability to seek debt relief, although the specifics of repayment and debt forgiveness differ. If you want to file personal bankruptcy or business bankruptcy, here are some things to consider.

Personal Bankruptcy: Chapter 7 and Chapter 13 

An individual looking to file bankruptcy has two options from which to choose: Chapter 7 and Chapter 13 bankruptcy. Both of these offer a form of debt relief, yet they do so in different ways.

Chapter 7 bankruptcy is for individuals who are entirely unable to repay what they have borrowed. Those filing under Chapter 7 must relinquish all of their non-exempt assets to their bankruptcy trustee, who will then liquidate them in order to repay creditors. Although this discharges all of the debt the individual owes, the bankruptcy reflects on his or her credit score for up to 10 years. With this, those hoping to file Chapter 7 must pass a “means test” demonstrating that their income is insufficient to pay back the debts.

For those whose income is high enough for partial repayment, Chapter 13 is the other option for personal bankruptcy. Chapter 13 bankruptcy allows a debtor to formulate a payment plan under his or her current income, helping the debtor pay back all or a portion of the debts over a period of time, usually three to five years.

Business Bankruptcy: Chapter 7 and Chapter 11 

Business owners who are unable to repay borrowed money to creditors also may file for a Chapter 7 bankruptcy. Although it will discharge their debt, it also will result in the eventual dissolution of the business altogether. The business owner no longer will be able to operate the company and will be forced to pursue other ventures.

Of course, if a business owner wants to continue operating the current company, he or she instead can choose to file a Chapter 11 bankruptcy, which is only available for business organizations. “A Chapter 11 debtor usually proposes a plan of reorganization,” according to U.S. bankruptcy code. This allows the owners of the company to plan their finances in a way that both lets them repay creditors over a period of time and continue to operate the business in the future.

A Chapter 11 bankruptcy is often the best choice for owners who wish to carry on the name and purpose of their business, and who can agree to a reorganization of the structure in order to avoid financial bankruptcy in the future.

Finally, Chapter 13 is also available for business bankruptcy but only those that are owned by only one individual (sole proprietorships). If you own a sole proprietorship, you can file for Chapter 13 bankruptcy for your business, allowing you to repay business debt with your personal finances. This will allow your business to stay in operation, as long as you pay off your debts within a three- to five-year window of time.

Talk to an Attorney if Considering Business or Personal Bankruptcy 

Filing for bankruptcy, whether personal bankruptcy or for your business, is one of the most effective ways to discharge your debts and begin to regain financial stability. If you are considering filing for personal bankruptcy, contact the attorneys at Warren & Migliaccio. We can examine your finances and advise you on the best course of action. Call us at 214-556-1038 for a free consultation today.

Article Category: Bankruptcy

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