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Can a business file for Chapter 13 bankruptcy?

A legal entity does not have to be an individual person. In Tennessee and throughout other jurisdictions in the United States, an entity can be a business, corporation or other form of legally-created body. Non-human legal entities can have some legal rights, including the right to file for bankruptcy under certain scenarios. However, entities such as businesses and corporations cannot seek protection under the Chapter 13 process.

Generally, individuals or married couples are the only entities that may file for Chapter 13 bankruptcy protections. Businesses and corporations are barred from utilizing the process, though they may use other forms of bankruptcy, such as Chapter 11 bankruptcy, to get their financial circumstances back on track.

There are limited instances when business debts may be addressed in Chapter 13 bankruptcy. For example, if an individual owns a business as a sole proprietorship, the person may be able to include any business debts that the person is personally responsible for in the Chapter 13 process. However, due to the complexities that can arise from mixing personal and business debts, readers of this post should consult with their own bankruptcy counsel to better understand if their debts are eligible for Chapter 13 protections.

Individuals generally may utilize Chapter 13 bankruptcy as a way to reorganize their personal debts and to get out from under heavy financial pressures. Businesses cannot use Chapter 13 bankruptcy, though they have other options available to them to address their economic hardships. Business owners that are struggling to figure out which form of bankruptcy might serve them the best can always speak with their personal bankruptcy lawyers about their options for seeking bankruptcy-related debt relief.

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