Reorganizing An Individual’s Business Under Chapter 13
Robert J. Adams & Associates

Reorganizing An Individual’s Business Under Chapter 13


An individual business can reorganize through a Chapter 13. The one limitation is that secured debts must be under $1,184,200 and unsecured debts must be under $394,725. If the debts exceed these amounts the individual will have to file a Chapter 11 to reorganize the business.

The benefits of a Small Business Chapter 13

  1. The filing of a Chapter 13 imposes the powerful Automatic Stay against all creditors including the IRS from taking any action to collect pre-filing debts. It provides immediate relief. The Automatic Stay also prevents threatened repossessions.
  2. The costs including the filing fee and lawyer’s fee are very reasonable; it is very inexpensive to start and actually file a Chapter 13. The current Court filing fee is $310. Attorney fees in Chapter 13 are usually a flat fee. Part of the lawyer’s fee can be included in the Chapter 13 payments itself. The total costs are remarkably lower than Chapter 11 cases.
  3. Individual business owners are generally not required to fill out the Means Test. The exception being if consumers debts (and home mortgages and student loans are considered consumer debts) are greater than the business debts. Payroll taxes are not consumer debts.
  4. A Chapter 13 plan has the power to cram down under-valued, secured property and impair unsecured debts. In other words, let’s say, a printing press is worth $10,000 with $15,000 debt. It can be repaid at the value rather than the amount owed. It is possible to cram down an auto loan if it is clear that the vehicle is used for business purposes.
  5. A Chapter 13 allows you get rid of unwanted property. One can owe a great deal of money on a “junk” car or possibly an antiquated piece of machinery. The secured debt can be converted to an unsecured debt.
  6. If property has been recently repossessed it can be recovered upon filing the case. This most frequently happens with automobiles.
  7. The tax man may be at your door but in a Chapter 13 IRS and other tax debts can be paid over a long period of time. Also, interest and penalties stop accruing.
  8. Frequently, impaired debts (general unsecured debts) can be paid at a fraction of the amount due. Unlike impaired creditors in Chapter 11 to be discussed later, creditors do not vote on the Debtor’s plan. However, creditors and the Chapter 13 trustee can raise objections to the proposed plan. The essence of the plan is that it treats creditors fairly and will pay general unsecured creditors as much or more than if the individual filed a Chapter 7.

The individual owning the business must list all assets and liabilities for themselves since the business does not have any separate debts. The plan must deal with all the debts.

The Chapter 13 client must complete schedules that show future income and expenses and the ability to handle to monthly Chapter 13 payments.

Chapter 13 cases are administered by a Chapter 13 trustee. It is certainly best that the trustee approve the Chapter 13 plan. This is accomplished by being well prepared when the case is filed.

Business assets must be itemized and valued. There must be a basis for the valuations. The trustee may well want an itemization of the purchase price of business assets as well as the date purchased. Depending on the business it may best to have an outside appraiser submit a detailed appraisal.

A successful Chapter 13 requires preparation to provide as much detail to the trustee, the court and interested creditors as possible. An experienced bankruptcy lawyer will guide you through the entire process.

Examples of a possible plan:

The owner of cab medallion files a Chapter 13 and the current balance to the finance company is about $250,000 while cab medallions have a value of about $60,000 to $65,000. A Chapter 13 can be crafted for about $1,500 per month for 5 years. At the end of the 5 year Chapter 13 plan the client will own his medallion free and clear of all debts.

Our client operates a small restaurant that mainly served lunches. Her unsecured debts exceeded $200,000. She was ready to throw in the towel and file a Chapter 7 and walk away from the restaurant. With our advice and counsel she instead filed a Chapter 13. The confirmed plan provided for a payment of only $200 for about 48 months. The Chapter 13 plan has been completed; her debts discharged; and she has kept her restaurant.

The law office of Robert J. Adams & Associates has proudly represented and helped individually owned businesses through the Chapter 13 process for decades. And, we want to help you.

For more information on Reorganizing Businesses Under Chapter 13, a Complimentary consultation is your next best step. Get the information and legal answers you are seeking by calling (312) 724-5650 today.

Call For Your Complimentary Consultation
(312) 724-5650