If you’re a business owner considering bankruptcy, choosing the right chapter matters.
Chapter 7 (Liquidation)
Chapter 7 eliminates most unsecured debts.
For business owners:
- Personal guarantees may be discharged.
- The trustee may review your ownership interest.
- Non-exempt personal assets may be liquidated.
Chapter 7 is often best when:
- The business is closing.
- Income is insufficient.
- There are no significant non-exempt assets.
- You want a clean break.
Chapter 13 (Reorganization)
Chapter 13 creates a 3–5 year repayment plan.
For business owners, it can:
- Stop lawsuits.
- Protect ongoing income.
- Allow repayment of tax debt over time.
- Help preserve assets.
Chapter 13 is often best when:
- The business is still generating income.
- You need time to catch up.
- You want to protect non-exempt property.
- You want to restructure rather than eliminate.
Key Differences
| Chapter 7 | Chapter 13 |
|---|---|
| Faster (3–6 months) | 3–5 year repayment |
| May liquidate assets | Protects assets through plan |
| Wipes out unsecured debt | Repays portion over time |
| Good for closure | Good for stabilization |
Which Is Better?
There is no universal answer.
The right chapter depends on:
- Business profitability
- Personal guarantees
- Asset exposure
- Tax debt
- Long-term goals
For some owners, Chapter 7 provides a fresh start.
For others, Chapter 13 provides breathing room to save the business.
Final Thought
Business bankruptcy decisions are strategic.
The wrong timing — or wrong chapter — can cost you assets or leverage.
If you are a business owner facing debt pressure, evaluating both your personal and business liability together is essential.
