Can My Business Choose Between Chapter 11 And Chapter 13 Bankruptcy?
When you are considering a reorganization bankruptcy for yourself or for your business, you may be wondering if you can choose among the different types of reorganization bankruptcy, or if your specific circumstances will determine the type of reorganization bankruptcy you must file for if you want to file for this kind of bankruptcy. Generally speaking, debtors cannot choose between or among different types of reorganization bankruptcy, although most debtors who are eligible for Chapter 13 could file for Chapter 11 but have no incentive to do so. There is also the specific subcategory of Chapter 11 bankruptcy known as Subchapter V, and a business that is eligible for Subchapter V can file for a traditional Chapter 11 bankruptcy but likely has no incentive to do so. Our West Palm Beach bankruptcy attorneys can explain in more detail.
Chapter 13 is Only for Individual Filers, But Sole Proprietors Count
If you are a small business and you want to file for a reorganization bankruptcy, it is unlikely that you can file for Chapter 13 bankruptcy unless your business is structured as a sole proprietorship. Since sole proprietorships and business owners are one and the same for legal purposes, a sole proprietor can file for a “business” bankruptcy under Chapter 13, but the bankruptcy will also include the sole proprietor’s personal debts. To be clear, the business debts in a sole proprietorship are the owner’s personal debts and vice versa, and the business assets in a sole proprietorship are the owner’s personal assets and vice versa.
Thus if you are not a sole proprietor, you cannot file for Chapter 13 bankruptcy. If you do own a sole proprietorship, you will need to have debts that total $2.75 million or less. If you do not, then you will need to turn to Chapter 11 bankruptcy.
Chapter 11 Bankruptcy and Subchapter V
In general, if a small business is eligible to file for Subchapter V, then it should typically do so since Subchapter V streamlines the bankruptcy process and removes many of the requirements associated with a traditional Chapter 11 bankruptcy case.
To be eligible to file for Subchapter V, your business — whether it is a sole proprietorship or another type of business structure like a partnership or corporation — must owe a total amount of debt of $7.5 million or less. If the total amount of debt is $7.5 million or less, you may be able to choose Subchapter V instead of filing for a traditional Chapter 11 reorganization. However, if you owe more than $7.5 million, it is likely that your only option will be to file for a traditional Chapter 11 bankruptcy unless you qualify for Chapter 12 as a family farmer.
To be clear, if you qualify for Chapter 13 bankruptcy, Subchapter V, or Chapter 12, you may be able to choose between the type of bankruptcy you are eligible for and a traditional Chapter 11 case, but the former types of bankruptcy provide less complicated, and often less costly, options for small businesses.
Contact a West Palm Beach Chapter 11 Bankruptcy Lawyer
Understanding the distinctions among different types of reorganization bankruptcies can be complicated, but one of our West Palm Beach Chapter 11 bankruptcy lawyers at Kelley Kaplan & Eller can provide you with more information.
Sources:
law.cornell.edu/uscode/text/11
congress.gov/bill/117th-congress/senate-bill/3823
