When a business faces serious financial challenges, bankruptcy can offer a way to manage debts and rebuild. However, filing for bankruptcy in Texas differs based on the business structure. Generally, small businesses, especially sole proprietorships, can file for Chapter 7 or Chapter 13 bankruptcy, whereas corporations often rely on Chapter 11 for restructuring and protection.
At Quadros Migl & Crosby, our experienced Texas business attorneys help small businesses and corporations assess the most appropriate bankruptcy options based on unique needs. Whether you’re a sole proprietor seeking to protect personal assets or a corporate entity aiming for reorganization, our firm offers informed legal guidance to support your goals.
Small Businesses: Chapter 7 or Chapter 13 Bankruptcy in Texas
For small businesses in Texas, especially sole proprietorships and partnerships, Chapter 7 or Chapter 13 bankruptcy may offer ways to eliminate or restructure debt over time. A key factor to consider is that sole proprietors and partners are legally tied to their businesses, meaning that a bankruptcy filing could impact personal and business assets.
Chapter 7
Known as a liquidation bankruptcy, this allows small business owners to eliminate most unsecured debts. However, it may require selling off some assets to pay creditors, making it ideal for businesses with limited assets they can afford to part with.
Chapter 13
A Chapter 13 bankruptcy is available to small business owners who want to keep their assets and manage debt over time. Although commonly used for personal bankruptcy, Chapter 13 is also an option for sole proprietors, allowing them to establish a repayment plan — typically over three to five years — while continuing business operations.
Corporate Bankruptcy: Chapter 11 for Texas Corporations
Chapter 11 particularly benefits corporations with significant assets or ongoing contracts that they wish to retain while reorganizing debt obligations. It enables corporations to stay operational by implementing a structured repayment plan agreed upon by creditors and overseen by the court. This process allows corporations to address debt without ceasing business operations or surrendering control.
Unlike small business bankruptcy, where owners’ personal assets may be at stake, Chapter 11 is designed to shield corporate owners from personal liability, provided there is no personal guarantee on business debts. This separation can be beneficial for protecting shareholders and directors from financial risk while focusing on corporate debt restructuring and long-term sustainability. However, filing for Chapter 11 can be costly and time-intensive, making it essential to seek knowledgeable legal assistance.
Pros and Cons of Chapter 7, Chapter 13, and Chapter 11 for Texas Businesses
Filing for bankruptcy can offer substantial benefits to businesses struggling with debt, but each chapter has unique advantages and challenges. Knowing what to expect from each option can help Texas business owners make a decision that aligns with their business goals.
Some key points include:
Chapter 7 Bankruptcy
Suitable for sole proprietors with limited assets and high debt. Often, it results in asset liquidation but allows for the discharge of most unsecured debts. It may impact personal credit for sole proprietors.
Chapter 13 Bankruptcy
Available only to small businesses operated by sole proprietors. Provides a structured repayment plan, allowing owners to retain assets while addressing debt over time.
Chapter 11 Bankruptcy
Primarily used by corporations and LLCs, allowing businesses to restructure and continue operating. Often complex and costly, but shields owners’ personal assets, unless personally guaranteed.
Why Legal Guidance Matters When Filing for Bankruptcy
Filing for bankruptcy can be intricate and, without proper guidance, may lead to unintended consequences for business owners. Asset protection, liability risks, and long-term financial stability vary greatly depending on the chosen bankruptcy chapter. For small businesses, particularly sole proprietorships and partnerships, working with a Texas business lawyer ensures that personal assets are protected as much as possible and that the filing aligns with the business’s future goals.
Corporations can develop a reorganization plan with the right attorney that satisfies creditors, protects valuable assets, and ensures compliance with court requirements. Additionally, legal guidance helps mitigate the challenges associated with creditor negotiations, allowing corporations to streamline the bankruptcy process and focus on rebuilding business operations.
Get Help Filing for Bankruptcy in Texas From Knowledgeable Business Lawyers
At Quadros Migl & Crosby, our dedicated Texas business attorneys are here to guide small businesses and corporations through every step of the bankruptcy process. With our firm’s extensive background in business law, we provide practical, client-centered solutions that align with your financial needs and goals.
Our team offers the individualized attention and responsive service you deserve. When you work with us, you gain a trusted advisor fully invested in helping your business find financial stability. To discuss your bankruptcy options, contact Quadros Migl & Crosby at (713) 300-9662 or complete a contact form to schedule a consultation.