Should My Business File For Chapter 11 Or Chapter 12 Bankruptcy?
Filing for business bankruptcy can be complicated, and the process can be even more complex when you are trying to determine your eligibility for one of the types of reorganization bankruptcy. In general, businesses that believe they can be viable in the future will often want to file for a reorganization bankruptcy in order to get back on track with business debts while keeping the doors of their business open, both literally and metaphorically speaking. If you do not have any familiarity with business bankruptcy, a quick search might reveal different types of reorganization bankruptcies for businesses that include Chapter 11, Subchapter V (which is a specific type of Chapter 11 bankruptcy), Chapter 13 bankruptcy (which is usually for consumers and is only available to businesses structured as sole proprietorships), and Chapter 12 bankruptcy.
Both Chapter 11 and Chapter 12 bankruptcy have a variety of similarities, and our West Palm Beach business bankruptcy lawyers want to clarify the key differences between these types of bankruptcy.
Chapter 12 Bankruptcy is Only for Family Farmers or Family Fishermen
Chapter 12 bankruptcy is a streamlined type of reorganization bankruptcy for certain businesses, but the key eligibility requirement is this: your business must fall under the category of either “family farmers” or “family fishermen” to qualify. If you do meet this requirement, then your business also must be able to show that it has a “regular annual income” that will allow for the repayment of debts through multiple installments over the course of a repayment plan. The repayment plan cannot last for more than five years.
Very large farms associated with big agriculture and extensive fishing operations likely will not qualify. Instead, the U.S. Bankruptcy Code explains that “family farmers” and “family fishermen” must be one of the following:
- Individual or married couple; or
- Corporation or partnership.
There are additional debt limits to consider, as well as additional income requirements.
If Your Business Does Not Involve Farming or Fishing, You Will Need to Choose Another Type of Reorganization Bankruptcy
When your business does not involve farming or fishing such that the business could be understood as “family farmers” or “family fishermen,” you will not be eligible for Chapter 12 bankruptcy. Instead, if you want to file for a reorganization bankruptcy, you will need to choose another type of reorganization bankruptcy. Your options may include:
- Traditional Chapter 11 bankruptcy;
- Subchapter V bankruptcy for small business debtors; or
- Chapter 13 bankruptcy if your business is structured as a sole proprietorship and your business has debts below the maximum limits
To determine the best type of reorganization bankruptcy for your business, you should seek advice from an experienced West Palm Beach bankruptcy attorney. For some businesses, reorganization bankruptcy may not be possible, and it may be necessary to file for Chapter 7 bankruptcy and to close the business.
Contact a West Palm Beach Business Bankruptcy Lawyer
Do you have questions about your business’s eligibility for different types of reorganization bankruptcy? You should contact one of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller to discuss your options.
Sources:
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics#:~:text=Chapter%2012%20is%20designed%20for,or%20part%20of%20their%20debts
