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Chapter 13: Offering Debt Relief for the Sole Proprietor

Chapter 13: Offering Debt Relief for the Sole Proprietor

The daily challenges of operating a business in a competitive marketplace as a sole proprietor can become overwhelming. If you are a sole proprietor with more debt than you can comfortably handle, a Chapter 13 bankruptcy might offer you the debt relief needed to put things back in order.

How does a Chapter 13 work?

Sole proprietors might benefit from filing a Chapter 13 bankruptcy to handle their business debt. Unlike a Chapter 7 bankruptcy in which a trustee is appointed to take control of the debtors’ s business assets and liquidate them to satisfy creditor’s claims, a Chapter 13 debtor can restructure most debt without having to relinquish possession of assets.

Under a Chapter 13, you have the protection of the bankruptcy laws that offer you the following benefits:

  • A stay preventing most creditors from demanding repayment
  • A stay on most pending lawsuits, repossessions and foreclosures
  • Lowering of interest rates on credit card debt in the repayment plan
  • Possible lowering of interest rates on car loans in the repayment plan

The stay relieves you of the stress caused by letters and telephone calls from creditors and debt collection agencies, so you have the opportunity to focus on creating a structured repayment plan providing for the repayment of all your debts over five-year period. While in the chapter 13, you make monthly payments to a trustee who then distributes the funds to your creditors. You are able to operate your business as you did before filing a bankruptcy without outside interference.

Unlike other forms of bankruptcy, Chapter 13 permits a sole proprietor to retain full control of the business without the necessity of obtaining approval from a court or trustee for most financial transactions related to the business. Provided you make payments according to the terms of the repayment plan, those unsecured debts that are not paid in full are subject to being discharged at the end of the plan period.

Eligibility for a Chapter 13

If you are a sole proprietor with less than $1,149,525 in secured business and individual debt and unsecured debt of less than $383,175.00, then you may be able to file a Chapter 13 bankruptcy to help alleviate the financial stress affecting you and your business. The limits apply to combined personal and business debts that a sole proprietor may owe.

Avoid problems during a Chapter 13 bankruptcy

The benefits to be derived from a Chapter 13 can be lost if you do not make the payments called for under the repayment plan. Other things that can result in the dismissal or closing of your bankruptcy besides missed payments include the following:

  • Failing to cooperate with the trustee
  • Not making payments to secured creditors that are outside of the bankruptcy, including vehicle loans and mortgage payments
  • Failing to pay child support or tax obligations
  • Not keeping the trustee informed about significant changes in your finances

A consultation with one of the knowledge and experienced Chapter 13 lawyers at McKenna Storer debt relief attorneys can provide you with more information of how bankruptcy might help you to resolve financial issues affecting you or your business. For additional information about this topic, contact Jaime Dowell at 815-334-9693.

Categories Bankruptcy Services

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