By: Moises Apsan
August 22, 2012, 11:24 am

The unincorporated business and Chapter 13 of the Bankruptcy Code

Every year thousands of people lose their business.  The reason for this can be attributed to many factors. Some stem directly from management, bad business decisions or incompetent employees. Sometimes the problem can be caused by changes in the economic climate.  Changes, which appear subtle at first, can slowly take a significant toll on a businesses bottom line   When the end is near large businesses turn quickly to bankruptcy lawyers who assist them in filing a Chapter 11 bankruptcy petition, enabling a failing business to re organize and negotiate new arrangements with their creditors. But small businesses, unlike their bigger brother find it very difficult to take advantage of the bankruptcy laws. Why this is so is quire clear. Money. The legal fees in these cases generally start at $10,000 and the filing fee alone is $500.  Not a surprise that small and even medium size business in trouble cannot afford the high tariff required to file a Chapter 11. Until 2005 a small-unincorporated business could avail them of Chapter 13 of the bankruptcy code.  But this chapter was limited to people that owed less than $100,000 in unsecured debts (like personal loans) and $350,000 in secured loans (like a mortgage or car loan).  These limitations were generally satisfactory for an individual but in many instances not enough protection for small and middle size businesses.

Luckily the overhaul of the Bankruptcy code provides equal and in many instances better protection for small and medium size businesses than Chapter 11 provides for their bigger counterparts. Under the revised bankruptcy law an individual or unincorporated business with regular income and unsecured debts of less than $360,475.00 and secured debts of less than $1,081,400.00 may be a debtor under chapter 13 of this title.  Unlike a chapter 11 the filing fee for a Chapter 13 is $296 and the legal fees generally is approximately $3,500.  Now it is possible for a small or medium size business to take advantage of the bankruptcy laws.  And the advantages are numerous.  All unsecured debts can be reduced, even as low as 5%.  And secured debts such as mortgage arrears can be repaid over a 5 year period in easy monthly payments.  Under certain circumstances a 2nd mortgage may be stripped and reduced to an unsecured debt.  Even IRS taxes can be included.  And best of all when the petition is filed the “Automatic Stay“ provision takes effect. Stopping all foreclosures, lawsuits, wage garnishment and creditor harassment.

Upon successful completion of a Chapter 13 plan you will receive an official "discharge" which extinguishes any obligation you have to pay the unsecured debts EVEN THOUGH YOU HAVE NOT REPAID  THEM IN FULL. Chapter 13 has saved the business and, you could almost say, the  lives of thousands of families throughout the United States.

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