Small businesses in financial turmoil often turn to Chapter 13 bankruptcy to regain their financial footing. Reuters reports a 23% increase in Chapter 13 filings in 2023.
This legal process offers a structured path for organizations to reorganize and repay their debts while continuing their operations.
Chapter 13 bankruptcy is available to both individuals and businesses facing financial difficulties. It allows companies to develop a repayment plan, often spanning three to five years. During this period, companies can keep their assets and continue running. They can operate while making monthly payments to creditors based on their disposable income.
A repayment plan outlines the business’s intentions for repaying its debts over the specified period. Companies must submit the plan to the bankruptcy court. Then, the creditors and the court must both grant their approval. Often, the plan prioritizes secured debts, such as mortgages, and certain non-dischargeable debts. These obligations should receive primary attention.
Chapter 13 bankruptcy offers several advantages to struggling businesses. It allows organizations to combine their debts into manageable monthly payments. This simplifies the process of handling many creditors and financial obligations.
Furthermore, Chapter 13 enables small businesses to keep critical assets, such as real estate, equipment and inventory. This is important to sustain ongoing operations and seek long-term success. Chapter 13 can also end creditor collection efforts, including lawsuits, foreclosures and repossessions. This gives businesses the necessary breathing room to reorganize and plan for their financial recovery.
Chapter 13 bankruptcy can remain on a credit report for several years. Fortunately, completing a repayment plan demonstrates responsible financial management. It can even open doors to improved creditworthiness in the future.
For small business owners facing financial distress, it is advantageous to understand the intricacies of Chapter 13 bankruptcy.