The different options available to file for bankruptcy can be confusing. As an individual, you may find that some options are only for businesses, and vice versa. However, if you operate a sole proprietorship, you may find that there are many more options available to you than you anticipate.
As a sole proprietor, your business is legally indistinguishable from you. According to Chron.com, this allows you to choose from bankruptcy options available to either individuals or businesses.
Chapter 13
Generally speaking, only individuals can file for Chapter 13 bankruptcy. However, the law makes an exception for you as the owner of a sole proprietorship. Chapter 13 reorganizes your debts so that you can pay them off gradually over a period of three to five years. This protects you from liquidation of your assets and allows you to keep running your business. However, you have to meet requirements regarding your income and debt level.
Chapter 7
Chapter 7 bankruptcy is available to both individuals and businesses, so there should be no issue filing as a sole proprietor. Chapter 7 bankruptcy can involve liquidation of your assets, i.e., selling them to pay your debts. However, many of your personal and business assets may be exempt from liquidation.
Chapter 11
Chapter 11 is not always available to individuals, but as a sole proprietor, it may be an option for you. Like Chapter 13, Chapter 11 involves reorganizing debts rather than liquidating assets. However, you may find yourself in a situation where you have to sell off personal assets to meet your obligations under the repayment plan for your business.
In the past, filing Chapter 11 was often complex and costly for small businesses. However recent legislation has streamlined the process and helped to make Chapter 11 more affordable for sole proprietors like you.