Does the means test apply if my debts are primarily business?

No. 11 USC § 707(b) applies the means test only when the debtor's debts are primarily consumer debts as defined in § 101(8). If more than half of total debt is business debt, the means test does not apply. Sole proprietors with substantial business debt can file Chapter 7 without satisfying the means test, even with high income. This is a significant advantage for failing business owners.

What chapter should a sole proprietor choose?

Chapter 7 if the goal is to wind down the business and discharge personal liability for business debts. Chapter 13 if the debtor wants to keep operating, has regular income, and total debt is under the limits in § 109(e). Chapter 11 or Subchapter V if debts exceed Chapter 13 limits or the debtor needs to reorganize a larger operation. Subchapter V is often the best fit for a small sole proprietorship that wants to restructure.

Can a sole proprietor keep operating in Chapter 7?

Not normally. A Chapter 7 trustee under 11 USC § 721 has discretion to operate the business briefly only if necessary to preserve value while liquidating, but ongoing operation is not the chapter's purpose. Sole proprietors who want to keep operating should file Chapter 11 or Chapter 13. Continuing to operate in Chapter 7 without authorization risks loss of the debtor's discharge for § 727 misconduct.

Are business assets exempt the same way as personal assets?

Many states provide a 'tools of trade' exemption that protects up to a statutory amount of tools, machinery, and equipment used in the debtor's trade or business. 11 USC § 522(d)(6) provides a federal exemption for tools of trade up to the statutory cap. Inventory and accounts receivable are typically not within tools-of-trade exemptions and are reachable by the trustee in Chapter 7.

What happens to my EIN if I file bankruptcy?

Sole proprietors typically file under their personal Social Security number, with the EIN used only for employment-tax purposes. The EIN remains assigned but inactive after a sole proprietor ceases operations. If the debtor restarts the business after bankruptcy, the same EIN may be reused. There is no separate entity that needs to dissolve, unlike with an LLC or corporation.

Sole Proprietor Bankruptcy - Personal and Business Debt Combined

Both at once because they are the same legal person. A sole proprietorship is not a separate entity. The owner files an individual bankruptcy that includes all business assets and liabilities together with personal assets and liabilities on the same schedules. Chapter 7, Chapter 11 (including Subchapter V), and Chapter 13 are all available depending on debt limits and goals.

Sole Proprietor Bankruptcy

Unlike LLCs and corporations, sole proprietors have no legal separation between personal and business debts. When you file bankruptcy as a sole proprietor, ALL debts - personal and business - go into a single case.

Chapter 7: Eliminates both personal and business debts. Business assets are included in the estate but may be protected by exemptions (tools of the trade, vehicle).
Chapter 13: Restructure all debts over 3-5 years while continuing to operate the business. Business income funds the plan.
Means test: Business income and expenses are included in the means test calculation. Net business income (after ordinary and necessary expenses) counts as income.

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