Filing small business bankruptcy in Georgia may be the best and only option for your business if you’re exhausted and feeling hopeless from juggling finances, such as struggling to pay your employees or suppliers. Learn about the different options for small business bankruptcy in Georgia and how to file bankruptcy for a small business.
Filing for bankruptcy sometimes is the only practical option for a troubled company. Apart from hiring a licensed small business bankruptcy attorney, understanding your options is the most crucial part.
Small Business Bankruptcy Georgia: Understanding the Different Chapters
Chapter 7: A complete liquidation is best if your business is in the process of closing or already closed. The dissolution of the business process is streamlined (made easier) and could relieve you of any liability connected with personal guarantees. Corporations can also file for Chapter 7.
Chapter 11: Lower your monthly debt burden by restructuring your business debt to help keep your company afloat. While this chapter can provide more flexibility for small business owners to work on finances, it usually is expensive and takes too much time, making it an unrealistic option.
Chapter 13: Restructure personal debt to help save your company. A business owner can’t file Chapter 13 except for sole proprietors.
If there is an issue of unpaid work, Chapter 13 can offer up cash to pay out employees. This is one of the biggest reasons some small business owners file Chapter 13 over Chapter 11.
Chapters 11 & 13: Small business owners (debtors) are allowed to submit a proposed plan to restructure their finances. Depending on the amount of debt owed and the proposed plan, this can help an owner stay in business.
A Chapter 11 or a personal Chapter 13 (with limitations) repayment plan can:
- Give you time to sell assets, whether be what you can’t afford to keep or don’t need
- Allow you to keep or retain property essential to business operations
- Discharge (eliminate) obligations you can’t pay over the repayment plan term (Chapter 11 only)
- Modify terms of payment on secured debts such as real property mortgages or business equipment loans
Chapter 11, Subchapter V: Ask your bankruptcy lawyer about the “cheaper” choice that works similarly to Chapter 13 bankruptcy.
In short, Chapter 7 is the liquidation bankruptcy chapter, whereas Chapters 11 and 13 are restructuring bankruptcy chapters (through repayment plans).
Eligibility for Chapter 7, 11, and Chapter 13 Bankruptcy
Chapter 7 Eligibility: Almost anyone is eligible to file for Chapter 7, such as the list below, although it may not be the best choice.
- Sole proprietors can discharge both personal and business debt by filing for bankruptcy in their name. If your business debt is more than your personal debt, you probably will not need to pass the Means Test.
- Partnerships and corporations can file but there is no discharge of business debt.
- LLCs are required to wipe out their business liability through personal Chapter 7 bankruptcy.
Chapter 11 Eligibility: Almost anyone is eligible to file for Chapter 11 bankruptcy as a debtor, as there are no debt or income requirements as well as no limitations.
- Corporations
- Partnerships
- Joint ventures
- LLCs (limited liability companies)
- Individuals
Chapter 11 requires the appointment of a bankruptcy trustee to manage the case when gross mismanagement or fraud is suspected.
Chapter 11 Subchapter V Eligibility: This is limited to qualified small businesses that hold a total debt burden not exceeding current limits.
Chapter 13 Eligibility: This chapter is available to individuals and sole proprietors with regular income, although, proof of sufficient income is required to support a Chapter 13 plan and will be subject to debt limitations that change periodically and other eligibility requirements under Chapter 13.
It is important to note that, small businesses formed as corporations, partnerships, or other entities are not eligible to file for Chapter 13. Yet, someone who owns a small business can file for bankruptcy as an individual debtor under Chapter 13.
Chapter 11 and Chapter 13 are the two most common chapters that small businesses file under.
Small Business Bankruptcy Georgia Pros and Cons
Chapter 11
Chapter 11 Pros:
- A debt discharge will occur for less than the full debt balance to be paid at the repayment plan’s confirmation (approval) instead of after the repayment plan is completed. The exception is if the court approves a plan without creditor consensus for Chapter 11, Subchapter V cases.
- A repayment plan creates new contract terms between the debtor (small business owner) and creditors and even better, can continuously have new terms created as long as needed.
- Unlike Chapter 13, Chapter 11 doesn’t require debtors to provide disposable income to the bankruptcy trustee, so the debtor (small business owner) remains in control.
Chapter 11 Cons:
- Cases can be complex and expensive, but not always are.
Chapter 13
Chapter 13 Pros:
- It’s significantly cheaper to file for Chapter 13 than Chapter 11.
- The repayment plan approval process tends to be quicker than Chapter 11.
- The court will shorten the commitment period if the debtor fully pays all unsecured creditors.
- A small business owner filing individually as a debtor under Chapter 13 can discharge more debt types, such as property payments or nonsupport obligations stemming from a marital property settlement agreement.
Chapter 13 Cons:
- Sole proprietors can only file as individuals.
- The debt limitations are significantly lower than those for small businesses in Chapter 11, Subchapter V.
- Repayment plans are limited to five years.
- The debtor must pay all disposable income (what is left over from monthly earnings after cost of living expenses) into their repayment plan.
Need More Help for Small Business Bankruptcy in Georgia?
Additional resources for small business bankruptcy in Georgia:
What to Avoid Doing Before Filing for Small Business Bankruptcy Georgia
Get Answers to Common Bankruptcy Questions
Explore what small business bankruptcy in Georgia can do for you with the best legal counsel in Atlanta from Charles M. Clapp, founder of CMC Law.
Contact CMC Law today for a free bankruptcy consultation!