Can demoting yourself help you with bankruptcy?

Owning and running your own business can be a thrilling experience, which is why some New Jersey business owners may not like the idea of going back to being an employee and taking orders from someone else. And yet if you are going through Chapter 13 bankruptcy, becoming an employee again may actually be helpful and could help save your business from being sold to pay your debts.

Chron.com explains how this works. After filing for Chapter 13 bankruptcy protection, you work out a plan and present it to your bankruptcy judge. According to this plan, you will become an employee of your own business. This involves stepping down as the current owner and selling or transferring your business to a new owner who will keep you on as an employee.

A bankruptcy judge may find this plan attractive since, as an employee, you will have a steady income. Since you are no longer an entrepreneur, you are not engaging in unpredictable business ventures that could result in further loss. Establishing a steady stream of wages gives you a better chance to show that you can make all the payments as required by your bankruptcy plan.

How you sell or transfer your business can also help you repay your creditors. If you sell your business, the bankruptcy judge may require you to use some of the proceeds to pay off a portion of your debt. You can also reap installment payments from a new owner if you use a transfer arrangement. In addition to your employment wages, you will have a second stream of income to fulfill your repayment obligations.

Once the bankruptcy is complete and if the new owner is willing, you can buy the business back and resume your duties as owner. Due to your recent bankruptcy, a bank might not be quick to approve a business loan for you, but you can still work out a series of payments or a transfer of the business title back to you.

This article is written to educate readers on the topic of Chapter 13 bankruptcy. Do not take any of its content as legal advice for your situation.

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