Small enterprise homeowners who’re sole proprietors can enlist the facility of chapter’s Chapter 13 to rescue their enterprise at a value they will afford.

Everybody thinks of Chapter 11 because the “preserve the enterprise and ditch the debt” type of chapter. However conventional Chapter 11 is cumbersome and simply flat out too costly for many small companies.

Enter Chapter 13. Consider Chapter 13 as a pared down Chapter 11.

• Collectors don’t get to vote in your plan of reorganization.
• You make a month-to-month cost.
• A trustee handles distribution of your plan cost.
• The automated keep retains collectors from accumulating.
• Underwater liens could be stripped off of your property.
• You proceed to function the enterprise.

Chapter 13 makes rescuing a enterprise each potential and inexpensive.

Chapter 13 vs. Chapter 7

The distinction between the chapters for a small enterprise proprietor is stark.

In Chapter 7, the appointed trustee virtually at all times needs any working enterprise shut down. Even when the enterprise has no sale worth, the trustee needs to keep away from the potential legal responsibility of leaving the debtor in possession of an working enterprise. Extra on why that’s so.

Not so in Chapter 13. Chapter legislation explicitly authorizes the debtor (the one that has filed chapter) to function any enterprise the debtor owns.

One other keystone provision in Chapter 13 is that the money owed that aren’t dischargeable within the chapter receives a commission forward of the overall unsecured collectors. [Except for student loans, which have no priority for payment and are generally non-dischargeable.

By law, the most important creditors are paid first; vendors and other creditors get whatever portion of the monthly payments remains after priority creditors are paid.

And liens with large face amounts can be stripped down to the value of the equity to which that lien attaches. So, seemingly huge liens can be shrunken to their real-world value.

Which businesses qualify for Chapter 13

The central requirement is that the business be owned by an individual. Corporations and LLC’s don’t qualify for Chapter 13.

The individual filing must have debts that are below the statutory limits. Those limits just went up in May, 2022 to $2.75 M. That makes Chapter 13 available to lots more people. Remember, since you are a sole proprietor, you and your business are a single, legal person. So, your personal debt counts toward the limits along with your business debt.

Finally, you must be able to make monthly payment to the Chapter 13 trustee, starting 30 days from filing. Your payments can start low, and step up over the life of the plan.

How much do you have to pay creditors in Chapter 13

Chapter 13 is powerful and flexible. It may be just the tool you need to rescue your business.

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