Business Bankruptcy Basics: Can Filing Chapter 7 or 13 Help a Small Business Owner?

Running a small business comes with many challenges. Cash flow issues, unpaid invoices, and unexpected expenses can quickly overwhelm even the most organized business owner. When financial pressure becomes too great, bankruptcy may offer a way to regain control and protect what matters most. Understanding the options can help business owners make informed decisions about the future of their company.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 is designed to provide a fresh start by eliminating most unsecured debts. For a small business, this can include credit cards, lines of credit, or personal guarantees tied to business debt. Chapter 7 often involves liquidating business assets to pay creditors, which may mean selling inventory, equipment, or other property.

While Chapter 7 can close the doors on a struggling business, it also relieves the owner of lingering financial obligations. Before moving forward, consider what can be protected under state exemptions and understand how the process affects personal assets if they personally guaranteed any debts.

Chapter 13 Bankruptcy: Reorganization

Chapter 13 works differently. Instead of liquidating, it allows business owners to reorganize debts and create a repayment plan. This option can be particularly useful for sole proprietors who want to continue operating while addressing overdue obligations.

Through Chapter 13, a court-approved plan spreads payments over three to five years. This provides breathing room for business owners. You’ll have time to rebuild revenue streams, renegotiate contracts, and stabilize operations.

The best part?

You’ll be able to retain assets and maintain your business while catching up on debts in a structured way.

Knowing Which Option Fits

Choosing between Chapter 7 and Chapter 13 depends on several factors. The size of the debt, type of business, revenue potential, and personal financial exposure all play a role. Consulting with a professional early can clarify which option aligns with your goals. Acting sooner rather than later preserves flexibility and can prevent creditors from taking more aggressive action.

Protecting Personal Assets

Many small business owners use personal credit or guarantees to fund their operations. Both Chapter 7 and Chapter 13 require careful planning to understand how personal assets may be affected. Filing bankruptcy strategically can minimize personal risk while addressing business obligations.

Planning for the Future

Bankruptcy is not just about eliminating debt; it is about creating a path forward. Filing can stop creditor actions, protect assets, and provide a structured approach to managing financial challenges. After the process, business owners can focus on rebuilding operations, credit, and confidence.

Early action is critical. Delaying bankruptcy often increases debt, complicates repayment options, and limits protections. Business owners who seek guidance quickly have the best chance of preserving assets and returning to stability.

If you are a small business owner facing overwhelming debt, understanding your options can make all the difference.

For more information or to schedule a consultation to discuss your situation, contact R. Flay Cabiness, II, P.C. at (912) 417-5041 (Brunswick, GA); (912) 809-2141 (Hazlehurst, GA) or; (912) 324-3176 (Jesup, GA) to schedule a consultation.