A Chapter 13 bankruptcy allows a debt-laden sole proprietorship that still has significant income to submit an orderly plan to the courts to pay back debts over a few years. This can offer advantages to the debtor not found in other forms of bankruptcy, such as preventing the foreclosure.
This type of filing is an excellent option for small business owners who want to keep their businesses going and are able to make monthly payments toward their debts. It will give those business owners a discharge of their debts at the end of the case, even where the debts have not been paid in full.
A Chapter 13 bankruptcy differs from the outright foreclosure of an individual's or business's assets (seen in Chapter 7 bankruptcy) and the expensive and complicated restructuring of debts seen in Chapter 11 bankruptcy. Under a Chapter 13 corporate filing, your business pays what it can afford toward your debt load for between three and five years. The monthly payments are made to the trustee, who disperses the assets to your business's creditors. At the end of the allotted time, your partially paid down unsecured debts will be discharged. You will be able to keep your business and any other property you own. This type of bankruptcy filing aids business owners who might otherwise lose significant assets in a Chapter 7 filing.
Eligibility for a business Chapter 13 filing is limited to sole proprietors, not corporations. Also, your business must have a regular income. Occasionally, a Chapter 13 trustee requires that business debtors submit a monthly or quarterly business income-and-expenses statement. This is done to see if your business can afford a larger plan payment. However, it is rare for a trustee to request that any debtor increase his plan payment unless there is a large, and consistent, increase in after-expenses income.