Can I File Chapter 13 Bankruptcy for an LLC or Corporation?

Corporations and LLCs cannot file for Chapter 13 bankrupcty, but they do have other bankruptcy options.

Unfortunately, corporations and limited liability companies cannot file under Chapter 13. Only individuals can file for Chapter 13 bankruptcy. Since corporations and limited liability companies are considered separate entities from their owners under the law, they are not included in an individual filing. There are alternatives that may be helpful, depending on your circumstances.

Bankruptcy Alternatives for Corporations and Limited Liability Companies

Under the bankruptcy laws, there are only two alternative options for businesses that are not sole proprietorships. Both have their drawbacks.    

Chapter 7 Liquidation

You could file a Chapter 7 for the business. However, a Chapter 7 is a liquidation. Your business will be closed and the trustee will sell the assets to pay business creditors.  This is a good option if you have decided that your business is not worth keeping and want to turn it over to someone else to handle the liquidation.

If you have personally guaranteed any of the business debts, you will continue to be obligated for any amounts left unpaid in the liquidation. Creditors holding guaranteed debts might also begin collection proceedings against you before the business liquidation is completed.

Chapter 11 Reorganization

You could file a Chapter 11 bankruptcy. Chapter 11 is a reorganization, primarily for business.  Generally, its purpose is to allow businesses to reorganize, selling unnecessary assets or unprofitable sectors and paying creditors at least a portion of the debt owed, usually over time. There are no debt limits, but it is very expensive to file a Chapter 11.  

Because there are numerous filing and reporting requirements, and you must hire an attorney to represent the business, it would not be unusual for a very simple, uncontested Chapter 11 to cost upwards of $50,000 in legal and accounting fees. And, unless a Chapter 11 plan pays all unsecured creditors in full, your stock or ownership interest might be cancelled and need to be repurchased. Chapter 11 is generally not a viable option for what most people consider a small business.

Non-Bankruptcy Alternatives

There are also non-bankruptcy options which could allow you to keep your business or, at least, control the liquidation a little more than you can in bankruptcy.  To learn more, see Non-Bankruptcy Alternatives for Corporations and LLCs.

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