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Small businesses can file for Chapter 13 bankruptcy too

Tennesseans start small businesses with the best of intentions. Many have a great service or product to provide; others simply want to be their own bosses. But good intentions do not guarantee smooth sailing. Some businesses will hit rough patches that may be best solved through bankruptcy.

Small businesses going through a stormy season should do their homework about bankruptcy. There are many avenues to take; choosing the right one can keep legal costs down while retaining as many of the business' assets as possible. And those benefits may just be the springboard a business needs to rebuild in the future.

Small businesses have several bankruptcy options, including Chapter 7, Chapter 11 and Chapter 13. Which option is best will depend on a variety of factors, including how the business is structured.

Chapter 7 is often referred to as liquidation because all of the filer's assets are sold off (made liquid). This approach works best when the business has few assets and the business owner does not want to continue the business.

Chapter 11 is a reorganization process available to corporations, partnerships and sole proprietorships (i.e., a business owned and run by one person). It can get really complicated very fast. It also receives heightened scrutiny from courts and court-appointed trustees. But it is an option for small businesses, especially for those set up as partnerships or corporations.

Chapter 13 is typically used by consumers, but it's also available to sole proprietors. Under Chapter 13, a filer will create a plan to repay its creditors. It will then submit that plan to the court for approval. One of the big advantages of Chapter 13 as opposed to Chapter 7 for sole proprietors is that the owners may be able to protect their homes. To decide whether bankruptcy is the right option and, if so, which avenue to take, Tennesseans may benefit from considering speaking with an experienced bankruptcy attorney.

Source: U.S. Small Business Administration, "Bankruptcy Options for the Small Business Owner," Jennifer D, March 24, 2010

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Mark T. Young & Associates
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Hixson, TN 37343

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