Many people who own businesses mistakenly think that because they own businesses, filing a Chapter 11 case will be the best for them. Chapter 11 is available to individuals and to businesses, but the reality is that most business owners are much better off filing a personal Chapter 7 or a Chapter 13. Chapter 11 bankruptcies are helpful in many circumstances but they are generally very complicated and very expensive and are therefore usually not the best answer.
Typically, small business owners have two types of debt—business debt and personal debt. For instance, a small business owner may have personal credit card debt and medical bills in addition to business credit cards, business vendor debts and business lease obligations. What some business owners may not realize is that the business owner probably signed a personal guarantee for most, if not all, of the business debt. This means that not only does the business owe the debt, but the individual business owner owes it personally as well. If a business owner defaults on business debt that has been personally guaranteed, the creditor may collect against the business and the individual personally.
Often, business owners can find debt relief by filing a personal Chapter 7 bankruptcy or a personal Chapter 13 bankruptcy. A personal bankruptcy will discharge or eliminate all of the personal debt as well as the personal obligation for any of the business debt that has been personally guaranteed. This means that the debtor will not individually or personally owe the personal or business debt. Even so, remember that certain debts cannot be discharged, including certain tax obligations.