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Options for a small business bankruptcy

Your small business may be your financial lifeline to earn money and survive in the world, but that doesn't mean it will always be successful. Just like people, small businesses can fail to pay their bills as well, and if a business falls into serious debt problems because of this, bankruptcy may be the best course of action.

When it comes to filing for bankruptcy for a small business, entrepreneurs will have the following three options:

Chapter 7 bankruptcy: This is most appropriate for small businesses that just can't keep running -- even after restructuring their deb. The creditors to the small business will receive as much as the business's existing assets and funds can afford to pay them after liquidation. The bankruptcy court will appoint a trustee, assets will be sold off, and creditors will receive as much of the value of their debts as possible. Then, the rest of the business's debts that are covered by the bankruptcy will be dissolved.

Chapter 13 bankruptcy: This is a great option for businesses that are still running and churning an income -- but it will only work for sole proprietorships. Chapter 13 bankruptcy will create a plan for restructuring your debt.

Chapter 11 bankruptcy: This is a mix of the Chapter 7 and Chapter 13 concept in which an LLC or corporation can streamline and reorganize its business operations for better profitability. The bankruptcy court could require the business to sell off assets in addition to creating a structured debt payoff program.

Is your small business in trouble? Do you need to get your debt situation under control? Make sure you fully understand the various bankruptcy options available to small business owners in Arizona.

Source: Fundera, "What Happens When You File for Business Bankruptcy?," Meredith Wood, accessed April 27, 2018

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
  • ABA | American bar Association | Defending Liberty Pursuing Justice
  • Oregon State bar
  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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The Dodds Law Firm, PLC, is located in Surprise and serves clients throughout the West Valley area. To schedule a consultation with a lawyer, call 623-208-6098 or toll free at 877-827-9906. You can also contact us online.

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