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Chapter 13 as a form of business bankruptcy


Louisville, Kentucky, residents routinely use Chapter 13 bankruptcy in certain situations where they want to resolve personal debts such as a mortgage or a credit card.

However, depending on how they organized their business, small business owners can also use a Chapter 13 bankruptcy to handle business-related debts by making lower payments on them, thereby giving them the opportunity to turn around their business around financially.

Because a Chapter 13 bankruptcy is only for individual debtors, however, a business owner cannot use it for business debts if his or her business was incorporated or formed as a limited liability company. In other words, the business and its debts has to be in the name of the individual person, even though a partner in a general partnership may be able to avail himself or herself of a Chapter 13.

There is some good news in this respect. For one, even if a business owner incorporated and thus cannot use Chapter 13 to discharge the business's debts per se, he or she can still use Chapter 13 to break free of any personal liability he or she might have to pay those debts. This is important because, in most cases, business owners sign a guaranty promising that if their business goes over, they will make good on the business debts.

The second point is that, when a person files a Chapter 13 with primarily business debts, depending on he amount of income he or she makes, he or she may not need to worry about having his or her income scrutinized as carefully when it comes to setting an appropriate monthly payment plan.

While of course there will be questions, a debtor who has experienced months of business losses will just need to pay a reasonable monthly amount toward his or her debts, and can do so over the course of anywhere between 3 and 5 years.

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