Can you discharge unsecured business debt?

| May 7, 2021 | Chapter 11 Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy |

Many North Carolina businesses rely on unsecured credit to finance their operations. Businesses that cannot make their loan and credit card payments might use the bankruptcy process to discharge their unsecured debts. However, the type of bankruptcy that might be appropriate will depend on how the business is structured and whether it wants to continue operating after filing for bankruptcy.

Discharging business debt in bankruptcy when a business will cease operations

If a business owner plans to file for bankruptcy and close the business, they can file for Chapter 7 bankruptcy for the business’s debts. This type of bankruptcy will liquidate the business’s assets to repay a portion of its unsecured debts. If the business is not a separate entity, the business owner will have to file for personal bankruptcy to receive a discharge. If the business is an LLC or another entity that is separate from the business owner, the business can file for Chapter 7 bankruptcy without the owner.

Discharging debt when the business will continue operating

Owners who want to continue the business’s operations might consider Chapter 13 or Chapter 11 bankruptcy. Chapter 13 bankruptcy can only be filed if the business owner is a sole proprietor since the business is not considered to be separate from its owner. The business owner can file for Chapter 13 bankruptcy as an individual and include the business’s debts. This will allow the owner to make payments over three to five years. Any remaining unsecured debt balances will be discharged at the end of the repayment plan. Chapter 11 bankruptcy is a commercial bankruptcy used by corporations that are separate from their owners. This is a debt restructuring bankruptcy that will be overseen by the trustee.

It is possible for businesses to discharge unsecured debts through the bankruptcy process. Since business bankruptcy can be complicated, people might want to consult with an experienced attorney to discuss their options.