The economic impact of the COVID-19 virus has been harsh. A small business owner and a hotel housekeeper face different, but difficult challenges amid this pandemic. USA TODAY


Many moons ago, I was a practicing bankruptcy lawyer. One thing I learned back then was that no one wants or plans to file for bankruptcy.

But I also learned that in the right circumstances, bankruptcy can be a lifeline. Maybe that’s why, although I never received a thank-you note from a litigation client, I received many from bankruptcy clients.

I am getting a lot of bankruptcy questions right now, so let’s demystify the process.

Question: What is bankruptcy?

Answer: Bankruptcy is a federal legal process that allows individuals and businesses to either wipe out their debt or restructure it, depending on the circumstances and type of bankruptcy filed.

Q. OK, so what types of bankruptcy are there?

A: Essentially, there are three different types of BK (as we lawyers call it): Chapter 7, Chapter 13, and Chapter 11 (these are different chapters in the bankruptcy code.)

Chapter 7 wipes out all unsecured debt – things like credit-card debt, unsecured loans, etc. For an individual with a lot of debt, not a lot of income, and without many assets, Chapter 7 can make sense.

But note, for a business, a Chapter 7 is also called a “liquidation,” and there is a reason for that: The bankruptcy trustee (the federal officer overseeing the case) will close the business and will liquidate the business’ assets to pay off the debts to the extent possible.

A Chapter 13 is for individuals (not businesses) who, for various reasons, cannot file a Chapter 7. This is a restructuring plan where usually only part of the debt is required to be repaid over a several-year period.

Chapter 11 is called a “reorganization” and is for corporations.

Q: So, which is the right choice?

A: If you have not incorporated, then you are personally liable for the business’ debts and you would file either a Chapter 7 or a Chapter 13. Chapter 7 often makes sense for sole proprietors and freelancers who are underwater and whose business is not separate from the individual, legally speaking. Similarly, if you are a solopreneur who owns a 真人百家家乐官网网站home, you can file a Chapter 7 or 13 and likely keep it (if you have too much equity, a Chapter 13 would be your better choice.)

More: The Small Business Bible." You can learn more about Steve at, get more tips at his site TheSelfEmployed, and connect with him on Twitter @SteveStrauss and on Facebook at TheSelfEmployed.

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