Small Business Bankruptcy in Iowa: What You Need to Know
If you own a small business in Iowa and are having a hard time paying your debts you may be considering filing for bankruptcy. Bankruptcy is a legal process designed to help individuals and businesses struggling to repay their debts by providing them with the opportunity to eliminate and/or repay their debts under the protection of a bankruptcy court. While bankruptcy can provide your business with a fresh financial start, be aware that the process is very complicated and should not be taken lightly. This article provides a brief overview of the need to know bankruptcy basics that small business owners should be aware of, however it is important to understand that each bankruptcy case is unique and that you must consult with a local bankruptcy attorney for case specific information.
Bankruptcy Options and Eligibility Requirements for Small Business Owners
While there are several different types of bankruptcy options available under federal law, the eligibility requirements, as the apply to small business owners, of the three most commonly used forms of bankruptcy are outlined below.
Chapter 7 Bankruptcy: Chapter 7 bankruptcy operates to wipe out most unsecured debts and involves selling the debtor’s available assets in order to pay off creditors to the fullest extent possible. This is generally a viable option for small business owners who lack the means to restructure their debt and continue operating their business after bankruptcy. Small business owners in Iowa may be eligible to file for Chapter 7 bankruptcy protection if their business is legally structured as a partnership, a corporation, or an LLC. However, a sole proprietor is not allowed to file for Chapter 7 bankruptcy on behalf of their business if they are not legally a separate entity from their business.
Chapter 11 Bankruptcy: Chapter 11 bankruptcy is generally used by small business owners who wish to continue operating their business after emerging from bankruptcy. Under Chapter 11 bankruptcy a business restructures its finances, with court approval, in order to balance its income and expenses and hopefully continue to operate after emerging from bankruptcy. Chapter 11 bankruptcy can be time consuming and expensive, but it is the only bankruptcy option available that enables small business owners who do not meet Chapter 13’s eligibility requirements to continue operating post-bankruptcy.
Chapter 13 Bankruptcy: Only individuals are allowed to file for Chapter 13 bankruptcy. This means that small businesses that are legally distinct entities from their owner(s) (for example, a partnership, a corporation, or an LLC) are not allowed to file for bankruptcy protection under Chapter 13. However, a sole proprietor who is not legally separate from their small business can file for Chapter 13 bankruptcy, assuming that they meet Chapter 13’s other eligibility requirements. These requirements include owing less than $394,725 in unsecured debt, or $1,184,200 in secured debt, as of the time that this article was written.
Need Legal Advice?
Small business owners who are interested in filing for bankruptcy should be aware that bankruptcy is an extremely complicated process and that there are several important requirements and exceptions to take under consideration that are not addressed above. However, the experienced bankruptcy lawyers of the Noyes Law Office P.C. are here to help and would be happy to discuss the detailed ins and outs of your potential bankruptcy case with you during a free no obligation consultation. To schedule an appointment contact our Fairfield office today at (641) 472-3236.