Monday, April 5, 2010


Sometimes a small business fails and is forced into small business bankruptcy. If you are a small business owner contemplating bankruptcy, you should seek the assistance of a bankruptcy attorney to advise you. Business bankruptcies are described as liquidation and reorganization of business and funds.

Small business can be categorized in the following ways and they can file under three kinds of bankruptcies specified by federal law. First, we need to understand the business forms that exist for small businesses.  Sole proprietorships are legal extensions of the owner, and it is the owner who is responsible for the assets and liabilities of the firm. This kind of business can take bankruptcy protection under chapters 7, 11 and 13. Corporations and partnerships are separate legal entities and they can file for bankruptcy under chapters 7 or 11.
It is important to understand the different chapters specified by the United States bankruptcy law declaring small business bankruptcy. 
Chapter 7
When the owners and partners of a firm feel that the company does not have substantial assets to repay the debts, only then is small business bankruptcy filed under Chapter 7. In other words the business is over and no restructuring is possible. Trustees are appointed by the bankruptcy court and asked to take possession of the assets like offices, warehouses, stock etc and these assets are distributed among the creditors.
Chapter 11
This chapter can be of use to those small businesses which have future. The companies which file for Chapter 11 small business bankruptcy make a plan for reorganization, to deal with creditors and repayment of debt. If the plan is approved by the creditors and court, the company can restructure itself and repay creditors in installments over a specified period.
Chapter 13
Only sole proprietorship companies can file for bankruptcy under chapter 13. When the owner files for chapter 13 small business bankruptcy, he or she will have to submit a plan for repayment to the court. The amount of repayment is dependent on the debt and the kinds of assets the owner possesses.  One can save his or her personal assets like house under this section.
It is important to consult you business attorney and a bankruptcy attorney when contemplating filing for bankruptcy.  If this is something that you are contemplating for your business, I have several very good bankruptcy attorneys that I can refer you to.  Please do not hesitate to contact me at (951) 737-4040 ext. 2 or The Out-House General Counsel.


  1. C. Simpson / CKS ChecksApr 6, 2010 03:18 PM

    Great blog!