A sole proprietorship has its fair share of benefits. It gives you full ownership of a business as well as total control of the operations therein. So you have the option to close the business, pass it down, or sell it to another person. Moreover, its license costs less than a corporation’s would.
On the other hand, a sole proprietorship may be overwhelming during trying times, for example, bankruptcy. The owner is personally liable for business debts; the inability or difficulty to pay back the debts may affect personal assets.
When you are experiencing financial challenges in your business and see no viable solution, you may file for bankruptcy.
Understanding the Implications of Bankruptcy
Oppenhuizen Law Firm, PLC reminds sole proprietors that bankruptcy involves serious implications and challenges. It is especially difficult because as a sole proprietor, you are individually responsible for all business debts.
Fortunately, filing for bankruptcy under this type of business structure gives you more filing options.
Knowing the Possible Filing Options
Sole proprietorship have three possible options for filing for bankruptcy: Chapter 7, Chapter 13, and Chapter 11 bankruptcy.
Chapter 7 bankruptcy lasts from three to six months. It discharges your full responsibility to pay for unsecured debts, but you may have to sell some of your property beforehand. For secured debts, however, you have the choice to let the creditor repossess the property or to pay them an amount equal to the said property.
Chapter 13 bankruptcy requires a reliable source of income to help pay for your debt. It requires a repayment plan within three to five years, including the minimum amount you need to pay. This type of bankruptcy enables you to make up for missed payments of secured debts to avoid foreclosure or repossession.
Chapter 11 bankruptcy is more useful if you aim to reorganize business affairs. It is a lengthy process compared to Chapter 13, but this is because it accommodates debts that exceed the limits of the latter.
The bankruptcy of a sole proprietorship may be challenging, but a series of bankruptcy options allow for flexibility, helping you stay strong.