Small Business Bankruptcy Attorney in Baton Rouge, Louisiana

While personal bankruptcies filed in 2022 fell to 287,721 nationwide from 413,616 in 2021, business bankruptcies also fell to 13,481 in 2022, a 6 percent drop from 14,437 the year before, according to statistics released by the Administrative Office of the U.S. Courts.  

Unlike individuals and families, businesses outside of sole proprietorship generally have fewer bankruptcy options. In a sole proprietorship, all the debts and obligations are held by the owner as personal liabilities, so that person can file Chapter 13 or Chapter 7, and perhaps Chapter 11 if the debts are high enough and the business qualifies. 

Partnerships and limited liability companies (LLCs) have somewhat different rules and options depending on the exact business model they adopt and how they protect themselves and their business in their organizing documents.  

If you own or partner in a business in or around Baton Rouge, Louisiana, and you’re considering bankruptcy as an option to rearrange your finances to help you and your business survive, contact us at the Hoke Law Firm. We will examine your debts and other obligations in relationship to your income, and help you choose the right bankruptcy option going forward to a fresh start. We also proudly serve clients in Lafayette and New Orleans. 

Choices and Consequences

A sole proprietorship is treated just like an individual or a family seeking to use the bankruptcy system. They can choose between Chapter 13 and Chapter 7, sometimes Chapter 11, depending on their circumstances. These options will be fully detailed in the next section. 

If you are involved in a partnership, the type of partnership can play a role in how bankruptcy is handled. In a simple or general partnership, all partners share equally in profits but also in liabilities. If bankruptcy comes into the picture, the partners will each have to assume their fair share and file bankruptcy.  

Unfortunately, creditors will likely not agree to a Chapter 13 reorganization if some partners have substantial assets. That leaves Chapter 7, which can lead to the sale of assets and potential lawsuits. 

A solution to this is to include a poison pill clause in the partnership agreement. Once one partner files for bankruptcy, the business dies and creditors and trustees are thus prevented from suing the other partners. 

In limited partnerships or limited liability partnerships, the partners are liable only for any debt that they personally guaranteed. The same holds true for limited liability corporations. The members (as the owners are called) are responsible only for debts they personally guaranteed, while the LLC can file for Chapter 7. It may even be possible to file for Chapter 11 bankruptcy protection.   

No matter what your needs are, our bankruptcy attorney is prepared to support you today. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known as the liquidation option. For individuals or families, there is a means test. In other words, you can’t earn more for your family size than what the state establishes as the threshold. You can also take advantage of exemptions to your bankruptcy to retain tools of the trade, home furnishings, and perhaps even your car and home. Qualified retirement accounts, Social Security, and other such benefits are protected as well. 

At the end of the process, the petitioner will be discharged from all unsecured debt obligations, but businesses that file for Chapter 7 will not receive a debt discharge, and if there are lawsuit judgments and settlements, the business will still be liable. 

Chapter 13 Bankruptcy

Chapter 13 is known as the “wage-earner’s plan.” For individuals, families, and sole proprietors who have a steady income, a debt reorganization can be worked out. This is done by computing disposable income (what’s left over after every necessary living expense has been met). The bankruptcy trustee will then divvy up that amount for three to five years, at the end of which you will be discharged from your unsecured obligations.  

The beauty is that you can usually keep all your assets, but for cars and real property, the monthly obligations must be honored. Secured obligations cannot be included in the repayment plan, though you may be able to restructure the loans. 

Businesses cannot file for Chapter 13 under the business name, but sole proprietors can often take advantage by using their own name as the owner. 

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is similar to Chapter 13 in that it uses a reorganization plan. Corporations have used this option to reorganize and stay afloat. For other types of businesses, such as partnerships or LLCs, the Small Business Reorganization Act opened a pathway for businesses besides corporations. 

Under Chapter 11, the business itself proposes a reorganization of debts and liabilities. Creditors, however, have to approve the plan, and they possess the option to submit a plan of their own, or even to force the business into Chapter 7.  

Once the plan is approved, the business becomes what is called a “debtor in possession,” meaning they get to operate the business on their own. A bankruptcy trustee generally does not oversee the process as they would in a Chapter 13.