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Bankruptcy for Small Businesses



A group of small business workers analyzing the numbersThroughout American history, innovation, the will to succeed and the willingness to take risks has defined entrepreneurs. These are the individuals who built our country and our economy. Every business has a story to tell, and all too many of those stories involve being bested by the innumerable challenges and uncertainties that business owners face on a daily basis. And so, knowing how to deal with an unsuccessful venture is just as important as knowing how to manage the growth of a successful one.

A recent University of Nevada study showed that 14% of those who file bankruptcy did so due to an unsuccessful small business venture. Property magnate Donald Trump is a good example of how filing for bankruptcy can be an excellent strategy in the face of a failing business venture to restructure finances, innovate a solution, and chart a new path to prosperity.

Bankruptcy provides structured methods to deal with personal and business debt. Many small businesses are unincorporated, so the entrepreneurs and sole proprietors of these ventures are eligible for filing certain chapters of bankruptcy that larger incorporated organizations are not. Many times, business owners sign as personal guarantors for their commercial and personal debt, so they become eligible to file for either personal bankruptcy option; Chapter 7 or Chapter 13.


Chapter 7 bankruptcy is likely the option to select should you decide to halt your business operations - any nonexempt equipment and other assets would be liquidated and used to pay off your creditors. The upside is, it’s a safe way to get a clean slate and let go of a business that’s on a collision course.

Chapter 13 bankruptcy can help a struggling business by allowing business owners to file bankruptcy and maintain possession of critical business assets while complying with a consolidated and reduced payment plan over the course of 3-5 years. At the end of the payment term, any applicable remaining debts are wiped away, or “discharged.”

Chapter 11 bankruptcy is a more complex solution for larger businesses dealing with massive amounts of debt. It's best to speak with an experienced bankruptcy attorney to determine which Chapter is right for you.


This is just a small introduction to dealing with business debt. The bankruptcy process is complex, and even more so when a business becomes involved. It’s important to meet with a bankruptcy attorney to drill down into the specifics of your situation in order to tailor a solution that meets your needs and the realistic goals of your business.

If you’re facing an uncompromising amount of business and/or personal debt, contact an experienced bankruptcy attorney to review your situation in detail, determine a strategy and take action. Lincoln Law is well-established bankruptcy firm and highly focused in bankruptcy law. They can help small business owners navigate the downside of entrepreneurial risk.