Best Bankruptcy Types for North Carolina Small Businesses

Is your small business in North Carolina struggling to stay afloat financially? Economic challenges, market fluctuations, or unforeseen events can push even the most resilient businesses into tough financial waters. 

Bankruptcy is often misunderstood as a sign of failure, but it can actually provide a fresh start or a pathway to regain financial stability. Understanding your options and choosing the right type of bankruptcy can make all the difference in how your business moves forward.

Understanding Bankruptcy Options for Small Businesses

Bankruptcy is not one-size-fits-all. Different types of bankruptcy address unique financial situations, and your choice depends on your business structure, the amount of debt you owe, and your goals for the future. 

The most common types of bankruptcy for small businesses are Chapter 7 and, Chapter 11. Sole proprietors have the additional option of filing Chapter 13.  Let’s break down each option to help you understand which one may be right for your business.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” It’s designed for businesses that cannot continue operating due to overwhelming debt.

• How It Works: In a Chapter 7 case, a trustee is appointed to liquidate the business’s assets and use the proceeds to repay creditors.
• Who It’s For: Sole proprietorships and businesses with minimal or no remaining assets who don’t intend to continue operating are typically good candidates for Chapter 7.
• Key Considerations: While Chapter 7 effectively closes the business, it only provides relief from debt obligations for the business that files. Business owners who signed personal guaranty agreements will still need to address those separately. 

Chapter 11 Bankruptcy: Debt Reorganization

Chapter 11 is known as “reorganization bankruptcy” and is ideal for businesses that want to keep operating while restructuring their debts or would be better equipped to sell their assets than a bankruptcy trustee.

• How It Works: Under Chapter 11, businesses propose a plan to reorganize their debts while maintaining daily operations. This often involves renegotiating terms with creditors or reducing the overall debt burden. This plan can include selling or surrendering unneeded assets or terminating unprofitable leases or contracts. 
• Who It’s For: Small businesses that have a solid operational model but need time toto repay debts or to renegotiate loan terms. Businesses with less than $3,024,725.00 in debt may choose to file a Subchapter V case and take advantage of its benefits which are designed to make the process faster and cheaper for small businesses.
• Key Benefits: Chapter 11 allows you to keep your doors open, retain employees, and work toward long-term financial recovery.
• Additional Resources: Learn more about Chapter 11 bankruptcy and how it may fit your business needs.

Chapter 13 Bankruptcy: For Individuals & Wage Earners

Chapter 13 bankruptcy is only available to individuals, making it a suitable option for sole proprietors.

• How It Works: Chapter 13 allows you to repay debts over a three- to five-year period under a court-approved plan.
• Who It’s For: Sole proprietors with steady income who want to retain personal or  business assets while catching up on past-due debts.
• Key Advantages: This type of bankruptcy protects your business and personal property and offers a manageable way to repay creditors without shutting down your business. 

Choosing the Right Path

Deciding which type of bankruptcy to file depends on several factors:

• Business Structure: While Chapter 13 is only available to individuals, both businesses and individuals can file Chapter 7 or 11 cases.
• Long-Term Goals: Do you want to close the business, or are you aiming for financial recovery and growth?
• Debt Type and Amount: The nature and scale of your debts can influence which bankruptcy option will work best.

Consulting with an experienced attorney can help you navigate these factors and make an informed decision.

When Bankruptcy Makes Sense

Did you know that nearly 20% of small businesses don’t survive their first year, and only about half make it to year five? While these numbers can seem daunting, bankruptcy offers a way to tackle financial challenges head-on and focus on a brighter future. For some businesses, the right bankruptcy choice can mean the difference between closure and a second chance.

How We Can Help

Navigating bankruptcy laws can be complex, but you don’t have to do it alone. At Biggs Law Firm, we understand the challenges North Carolina small businesses face and are committed to helping you find the best solution for your unique situation. Whether you’re considering Chapter 7, Chapter 11, or Chapter 13, our team provides personalized guidance to help you achieve financial stability.

If you’re ready to explore your options, contact us today to schedule a consultation. Take the first step toward resolving your financial challenges and securing a stronger future for your business.