{"id":286892,"date":"2021-01-25T17:37:47","date_gmt":"2021-01-25T22:37:47","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/bankruptcy\/business-bankruptcy.html"},"modified":"2024-07-30T13:33:36","modified_gmt":"2024-07-30T18:33:36","slug":"business-bankruptcy","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/bankruptcy\/business-bankruptcy.html","title":{"rendered":"Business Debt and Bankruptcy"},"content":{"rendered":"\n
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\n \n Business Debt and Bankruptcy\n <\/h1>\n \n Even the most well-managed businesses can fall on hard times.\n <\/p>\n <\/div>\n<\/div>\n\n\n
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\n By Amy Vandervort-Clark, J.D.<\/a> | Legally reviewed by Susan Mills Richmond, Esq.<\/a>\n | Last reviewed\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

Even the most well-managed businesses can fall on hard times. The COVID-19 pandemic and its economic impact caused financial strain on people and businesses. Many small business owners took on more debt to keep their operations afloat. As\u00a0pandemic-era government relief expired<\/a>, personal bankruptcy filings rose 16% in 2023. Business\u00a0bankruptcy filings rose more than 40% in 2023<\/a>\u00a0over 2022.<\/p>\n

If you are facing significant business debt, you may consider filing for business bankruptcy. Bankruptcy doesn’t always signal the end of your business. This section offers information for struggling businesses that are considering bankruptcy.<\/p>\n

Businesses have many bankruptcy options. If you are unsure which type of bankruptcy is right for you, talk with a bankruptcy attorney.<\/p>\n\n\n\n

Business Bankruptcy Basics<\/h2>\n

Bankruptcy<\/a> is a legal process offering debt discharge or restructuring for businesses and people overwhelmed by debt. Bankruptcy can offer a fresh start by lifting the burden of heavy debt.<\/p>\n

There are two types of bankruptcy: Liquidation and reorganization.<\/p>\n

Liquidation bankruptcy, or Chapter 7<\/a>, closes your business operations. A bankruptcy trustee<\/a> oversees the sale of all non-exempt business assets<\/a>. These proceeds get distributed to your creditors. Chapter 7 does not discharge your personal debts when filed for a business. If you used personal credit cards or took out personal loans to help your business, those debts remain your responsibility.<\/p>\n

Reorganization bankruptcy is available under Chapter 11 and Chapter 13. Chapter 13 bankruptcy is primarily for individuals and some sole proprietors, while Chapter 11 is for businesses. Chapter 11 allows the business entity to remain open. The business undergoes restructuring and devises a repayment plan. Some business creditors may settle your debt for less than owed.<\/p>\n

Once a business files for bankruptcy, an automatic stay<\/a> is in place. This stay stops creditors from trying to collect payment and halts foreclosure actions and repossessions while the bankruptcy case moves through the court.<\/p>\n

What Type of Business You Have Matters<\/h2>\n

How you set up your business can affect what type of bankruptcy you qualify for or which might be most appropriate.<\/p>\n

You are personally liable for business debts if you have a sole proprietorship<\/a> or a general partnership<\/a>. Creditors can pursue your personal assets to meet business debts. Bankruptcy, in this instance, will likely affect your credit score.<\/p>\n

Corporations<\/a> and limited liability companies<\/a> (LLCs) are not personally liable for business debt but are responsible for paying them.<\/p>\n\n\n\n\n \n \n \n \n Family Farmers and Fishermen\n \n <\/i>\n <\/span>\n <\/button>\n <\/h2>\n \n