Can a sole proprietor file chapter 13 bankruptcy?

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I have my own small catering business, which I run out of my home. I probably bought too much, too high-end kitchen appliances when I started it, which I paid for by maxing out my credit cards. I also spent too much on my initial advertising, I think. Plus I have a lot of debt from trying to live without a full-time income (I work part-time in a restaurant) while I got my business going. Long and short of it, I’ve got creditors phoning me day and night over debts I can’t pay. I don’t want to throw in the towel, though. I think that if I could get some breathing room from creditors, I could make a go of things. Is a Chapter 13 bankruptcy an option? It’s a sole proprietorship, if that matters.


It does matter—if your business were an LLC or a corporation, you could not take advantage of a Chapter 13 adjustment of debt bankruptcy for it, though you could still file for purely individual debts.

Fortunately, a sole proprietorship is the individual proprietor; there is no separate legal entity, as there is, for example, with a corporation. The proprietor is his business and vice versa. That means that you can file Chapter 13 for your business debts as well as your personal debts, since they are all personal debts in essence. As the U.S. Courts, writing about bankruptcy, have noted: “Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e).”

That means that the one potential bar to use of Chapter 13 by you would be the amount of your debt; if it is too high, then you would have to use another form of bankruptcy, such as Chapter 7 liquidation bankruptcy. However, if your debts are underneath that threshold, you can use Chapter 13.

Deciding whether to file bankruptcy, and which bankruptcy to file, can be a very complex decision. You should consult with a bankruptcy attorney before doing so, to make sure you’re making the right choice.