Bankruptcy Information Center

Keep a Business Running After a Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the most common choice for smaller business that wish to keep operating while debt issues are resolved. The main benefit of Chapter 13 bankruptcy over Chapter 7 is that nothing needs to be liquidated to satisfy creditors. The first step is to determine if the company is qualified for Chapter 13 bankruptcy.

Qualifications

The debtor must have less than $269,250 in unsecured debt and less than $807,750 in secured debt. Unsecured debt means that there is no security interest nor collateral adding to the debt. An example of a secured debt would be equipment loans. If the creditor can seize the equipment (cars, truck, machinery) then the debt is secured. A credit card is an example of unsecured debt.

Proposed Payment Plan

Because there is hope that the business will eventually become profitable again by continuing operation and eliminating debt, a plan must be devised. This is called the proposed payment plan. This plan must include all debts and assets. There is some property that is exempt. This exempt property is covered by both state and federal law and often encompasses homesteads and personal property.

The plan will include a payment schedule. After the plan is drawn up it is voted on by stockholders, bondholders, and creditors. After a successful vote the plan is submitted to the bankruptcy court for confirmation. The plan can be flexible. However, if the plan is rejected by vote it must reveal a full satisfaction of debts or all disposable income for a three-year period. The presiding bankruptcy judge can disregard the vote. Some debts, such as tax debt and child support, may receive higher priority for repayment. After confirmation, the court will assign a trustee to supervise and administer the plan.

Trustee

The trustee will have an investigative role, meaning that he or she is empowered to evaluate the plan and determine if it is thorough it its disclosure. The trustee can also investigate any fraud or omissions in regard to the proposed payment plan.

Result of Filing Chapter 13 Bankruptcy

The main effect of the Chapter 13 filing is the ability of the company to retain its assets and the extension of the time allowed to repay its debts. The repayment period can last up to five years with special permission from the court. However, the typical period is three years. Each month of the three years will require a good faith effort by the debtor to abide by the proposed payment plan.

Conclusion

The goal of the Chapter 13 filing is both to have debt paid and encourage the survival of businesses that could eventually become profitable.

If you are considering filing for bankruptcy you should consult an attorney. Bankruptcy lawyers are an excellent resource for this information.