Chapter 13 Bankruptcy: A Lifeline for Long Island Sole Proprietors Struggling with Business and Personal Debt

Small business owners across Long Island face unique financial challenges that can quickly spiral out of control. When mounting debts threaten both personal and business stability, Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietors, making it a crucial option for entrepreneurs seeking to reorganize their financial obligations while keeping their businesses operational.

Understanding Chapter 13 Wage Earner Plans

A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Unlike Chapter 7 liquidation bankruptcy, Chapter 13 bankruptcy, a repayment plan or wage earner’s plan, allows individuals to reorganize and repay their debts over three to five years. Unlike Chapter 7 bankruptcy, which involves liquidating assets, Chapter 13 allows individuals to keep their assets while creating a manageable repayment plan.

For Long Island sole proprietors, this distinction is particularly important. Sole proprietors can file for Chapter 13 bankruptcy to address personal and business debts. Filing is done under the owner’s name since they and their business are considered the same legal entity. This unique legal structure allows business owners to tackle both personal credit card debt and business-related obligations under a single, comprehensive plan.

Eligibility Requirements for Sole Proprietors

To qualify for Chapter 13 bankruptcy on Long Island, sole proprietors must meet specific criteria. To qualify for Chapter 13, you must have regular income, have filed all required tax returns for tax periods ending within four years of your bankruptcy filing and meet other requirements set forth in the bankruptcy code. Additionally, any individual or married couple, even if they are self-employed or operate a business, can potentially qualify for Chapter 13 bankruptcy. However, their unsecured debts must not exceed $419,275, and their secured debts must not surpass $1,257,850.

The regular income requirement is flexible for business owners. The USBC defines that individual as one whose income is sufficiently stable and regular to enable them to make payments under a Chapter 13 plan. This means that seasonal businesses or those with fluctuating income can still qualify if they can demonstrate a reliable income stream.

Key Benefits for Long Island Small Business Owners

Chapter 13 bankruptcy offers several advantages specifically valuable to sole proprietors:

• Asset Protection: Chapter 13 enables small business owners to keep their business assets. This is particularly beneficial for sole proprietors who rely on these assets to operate their businesses.
• Automatic Stay Protection: Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments.
• Debt Restructuring: Chapter 13 bankruptcy may allow small business owners to “cram down” the balance of certain secured loans. This means reducing the amount owed on loans secured by collateral, such as car or equipment loans, to the property’s current value. This can result in significant savings and make the repayment process more manageable for businesses.

The Chapter 13 Process Timeline

Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. The length of your plan depends on your income relative to your state’s median. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years.

During this period, The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. This streamlined process means sole proprietors make one monthly payment to the trustee, who then distributes funds to creditors according to the court-approved plan.

Working with Experienced Legal Counsel

Navigating Chapter 13 bankruptcy as a sole proprietor requires specialized expertise. When seeking legal representation, it’s essential to work with a Bankruptcy Lawyer Long Island who understands both personal and business debt challenges. The complexity of sole proprietorship cases demands an attorney familiar with the unique aspects of combining personal and business financial obligations under a single bankruptcy filing.

Ronald D. Weiss, P.C., has been serving Long Island residents since 1993, offering a personalized approach to debt solutions. The Law Office of Ronald D. Weiss, P.C. looks at each client’s case individually based on their specific situation and needs. Our goal is to offer highly effective legal help that is both compassionate and affordable. We often use multiple debt solution tools – bankruptcy, litigation, and negotiation – together as part of a larger strategy where they support and strengthen each other.

Post-Discharge Fresh Start

Upon successful completion of the Chapter 13 plan, any remaining balances on qualifying debts will be discharged or forgiven. This discharge provides a fresh start, allowing small business owners to move forward without overwhelming debts. This fresh start is particularly valuable for sole proprietors who can continue operating their businesses with a clean financial slate.

Important Considerations for Long Island Business Owners

Before filing Chapter 13, sole proprietors should understand that when filing for Chapter 13 bankruptcy as a sole proprietor, detailed information must be provided about personal income, expenses, business income, business debts, and business assets. This comprehensive disclosure ensures the court has a complete picture of both personal and business financial circumstances.

It’s also crucial to note that if your business isn’t a sole proprietorship, the short answer is no—Chapter 13 bankruptcy is for individuals and sole proprietors only. Partnerships, LLCs, and corporations cannot file Chapter 13 and must explore other options like Chapter 11 or Subchapter V.

Taking the Next Step

For Long Island sole proprietors facing overwhelming debt, Chapter 13 bankruptcy can provide the breathing room needed to reorganize finances while maintaining business operations. The key is acting quickly and working with experienced counsel who can evaluate your specific situation and develop a comprehensive strategy.

If you’re a sole proprietor struggling with mounting business and personal debts, don’t wait until the situation becomes unmanageable. Chapter 13 bankruptcy offers a structured path to financial recovery while allowing you to keep the business assets essential to your livelihood. With proper legal guidance and a well-crafted repayment plan, you can emerge from Chapter 13 with a fresh start and the tools needed to build a more stable financial future.