4 Ways Chapter 13 Bankruptcy Can Save Your Business

Most people who file Las Vegas bankruptcy choose to file in chapter 7 because they have mainly unsecured debt, usually credit card debt, and no real assets or income with which to pay it. Others, however, can afford to pay down their debts—just not all of them. In those circumstances, chapter 13 is the answer. Debtors who are sole proprietors of businesses, on the other hand, usually face a conundrum: completely liquidate their businesses or continue to operate them in chapter 13? Here are four reasons to choose the latter option.

(1)  Filing bankruptcy in chapter 13 while operating a sole prop merely requires the debtor to incur what’s referred to as “trade credit” in Section 1304 of the Bankruptcy Code. Trade credit is simply any debt taken on for the purposes of operating a business, which can include debts spent on office supplies or even advertising. Such debtors are “engaged in business” for the purposes of the Bankruptcy Code.

(2)  Section 1304 also enables the debtor to continue operating the business, which would normally fall under the trustee’s purview. There are at least three reasons for this: One, it puts the debtor on equal footing to other chapter 13 debtors who have wage and salary jobs and are not self-employed; two, the debtor can use the income from the business to pay off debts to his or her creditors; three, the trustee is usually not as good at operating a business as the debtor would be. The bankruptcy court’s permission might be necessary before taking on new debts, however.

(3)  The Bankruptcy Code also grants the debtor the power to sell or lease property and renegotiate or cancel leases. This is a necessary power for the debtor to continue operating the business.

(4)  Debtors are also free to use chapter 13 to their individual benefits, such as using the automatic stay to halt a foreclosure or collection efforts, stripping a discharged secondary lien on a home, or cramming down a vehicle’s value.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.

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