Sole Proprietorship Chapter 11

Practical insights from powerhouse attorney, author and speaker Bradley Bailyn.

When you think of a Chapter 11 bankruptcy, you probably envision a major multination corporation seeking to restructure their massive business empire. But did you know that Chapter 11 bankruptcy protections are commonly used by sole proprietors to get a financial fresh start as well? One small business owner I spoke to recently had no idea it was an option.

The small business owner had opened a catering business out of her home. She had dabbled as a caterer for years with some success, but an expansion into a storefront had proven to be a mistake. Now, she’s trapped in a lease she can’t afford despite having a viable customer base. I let her know that filing bankruptcy could help her get relief from her lease and potentially ease her other debts as well. She was intrigued, but she had some questions:

  • Can a bankruptcy get me out of my lease entirely?
  • I owe my landlord a lot of interest and fees on my back rent; is there any way to avoid paying that?
  • Can I continue to operate my business during bankruptcy?
  • Is bankruptcy the only way to restructure my business?

These were all good questions, and I was able to answer them for her. If you have questions about your sole proprietorship for an experienced New York bankruptcy attorney, contact the Bailyn Law Firm and let me answer them for you, too.

Restructuring Under Chapter 11

If your business is anything like the caterer I spoke with recently, your problem may not be entirely based on a lack of revenue. If you have a strong customer base but are still barely staying afloat, a Chapter 11 bankruptcy may be able to help.

Rent can be a major hurdle for many growing businesses. This is especially true in New York, which has seen skyrocketing commercial rent in the past decade. You may be able to get relief from your rent, whether you simply cannot afford the rate previously agreed to or if you have a good-faith dispute about the terms of the agreement.

Bankruptcy is an ideal setting to restructure a lease thanks to something called the automatic stay. The automatic stay immediately halts all collection efforts by your creditors the moment you file for bankruptcy. This includes collection efforts from your landlord. If you simply want out of your lease, you will have the opportunity to reject it and move out entirely. If you are hoping to stay in your current space but with more favorable terms, your bankruptcy attorney will have the opportunity to negotiate with your landlord. In some cases, your landlord may be willing to make some concessions like lowered rent, better terms, or even waiving some late fees.

Does Chapter 11 make sense for your business?

If you have questions about restructuring your sole proprietorship and dealing with your creditors, give me a call. While bankruptcy isn’t right for everyone, I can help explain your options on how you can move forward with your business.