For businesses in Salem struggling with debt, the best course of action to resolve those debts while still maintaining ongoing operations may be to seek bankruptcy protection. Businesses in such a situation that are considering bankruptcy may think that there options are limited filing under a Chapter 11 case. However, a company may file a Chapter 13 bankruptcy provided that certain conditions are met.
The United States Courts state an individual operating an unincorporated business may seek Chapter 13 bankruptcy protection. Thus, sole proprietorships may qualify for this form of bankruptcy, as may general partnerships under certain conditions. It does, however, go on to state that such businesses may not have unsecured debt in excess of $383,175 or secured debts greater than $1,149,525 if they want to be considered as eligible for Chapter 13 bankruptcy. These restrictions typically limit the types of companies that can seek this form of debt relief to small businesses.
What are the advantages of a small business filing for Chapter 13 as opposed to another form of bankruptcy? Primarily, a Chapter 13 can help ensure its ability to stay in business by retaining its assets, even those that are nonexempt. For example, according to the federal exemption guidelines, in a Chapter 7 case a debtor can only exempt the following amounts of interest in assets one may consider to be business-related:
- $2,400 in a motor vehicle
- $8,000 in aggregate value of personal items such as appliances, animals or crops
- $1,500 in tools of the trade
Beyond that value, the bankruptcy trustee will often liquidate assets to settle debt claims. With a Chapter 13, however, a small business owner can include the value of nonexempt assets in the repayment plan. He or she simply needs to guarantee the repayment amounts equal the nonexempt amounts due to creditors.