Sometimes hard work just isn’t enough to keep the lights on. If you’ve found yourself unable to pay suppliers and employees and incurring large amounts of debt with no means to pay, you may have no other option but to declare bankruptcy. On a positive note, if you’re a sole proprietor who doesn’t want to close just yet, bankruptcy may allow you to continue operations.
How sole proprietors can use Chapter 13 for debt relief
If you have trouble keeping up with your payments, you may consider declaring Chapter 13 bankruptcy. This can help you reorganize your debts and make them more manageable under a court-approved repayment plan lasting three to five years. However, it applies to individuals, not businesses.
The way a sole proprietorship is structured provides a workaround. It’s because the business is not a separate legal entity from the owner, unlike in an LLC, partnership or corporation. Because of this, you may file for Chapter 13 under your name and lump your personal and business debts together.
Declaring bankruptcy may allow you to divide your monthly payments among your major creditors. This can give you the breathing space to get back on track and continue operating your business.
Keeping business assets after declaring Chapter 13
When you declare bankruptcy, you are allowed to protect certain assets from liquidation up to a certain amount. These are your exempt property or the assets you need to live and work. Meanwhile, your nonexempt property is sold off to repay creditors.
Chapter 13 in Tennessee provides a unique advantage. As a sole proprietor, it could allow you to keep all of your property, including nonexempt assets, most of which you likely depend on to keep your business going.
However, the value of any nonexempt property will be included in your repayment obligation. Valuable equipment, stock and fixtures could render it expensive.
It can be overwhelming to navigate the complexities of bankruptcy while trying to keep your business afloat. Any missteps here might have devastating effects on your company and your finances. Consider seeking the advice of a bankruptcy lawyer before making any decisions.