Small Business bankruptcy
Sole proprietors or DBA's can file bankruptcy under Chapter 7 or Chapter 13 Bankruptcy. Since the debt and liability is personally linked to the owner, either of these bankruptcy options are available to eliminate or reorganize personal and business related debt.
CHAPTER 7 BUSINESS BANKRUPTCY
A Chapter 7 Business Bankruptcy is designed for a business that is going out of business. Under this bankruptcy, the assets of the business are sold and the debts are wiped away. Closing a business through Chapter 7 Bankruptcy is legally preferable because it provides transparency to creditors and the Secretary of State and relieves the business of any future liability for fraud.
Upon closure it may also be necessary for the owners of the business to also consider a personal bankruptcy. This is especially the case for many small businesses because the owners are often personally liable on the debt. Filing bankruptcy for the business alone will not eliminate the personal liability of the owners. For this reason, any business owner considering bankruptcy should consult an experienced bankruptcy attorney to determine what steps need to be taken to protect their personal liability.
CHAPTER 11 BANKRUPTCY
A Chapter 11 Bankruptcy is a form of reorganization for a business. It is similar to a Chapter 13 personal bankruptcy. It allows a business to restructure their debts through a repayment plan, while still staying in business.
In 2019, Congress introduced the Small Business Reorganization Act, Subchapter V. The purpose was to simplify the Chapter 11 process for small businesses.