Business Bankruptcy in Miami

When a small business cannot pay its bills, the owner has several distinct legal options. Each works very differently. Choosing the right path requires an honest look at whether the business is viable in some restructured form, what the personal guarantees look like, and what the owner wants to do next.

The Three Main Paths for a Struggling Business

1. Chapter 7 Liquidation

An entity (corporation or LLC) files Chapter 7 to wind down operations and have a trustee liquidate the remaining assets. The entity does not receive a discharge – Chapter 7 discharge is only available to individuals – but Chapter 7 provides an orderly, court-supervised process to deal with creditors, employees, customers, and remaining assets. The entity ceases to exist when the case closes.

An individual sole proprietor can file Chapter 7 personally to discharge both personal and business debts (because a sole proprietorship is legally the same as the individual). This is often the simplest path for a one-person business with personal liability for everything.

2. Chapter 11 / Subchapter V Reorganization

If the business is viable in a restructured form – meaning it can generate enough cash to pay operating expenses and at least some portion of debt – Chapter 11 or Subchapter V allows the business to continue operating while it negotiates a plan with creditors. Subchapter V is particularly suited to small businesses because it eliminates many of the cost drivers that made traditional Chapter 11 inaccessible to most companies under about $5 million in revenue.

3. Assignment for the Benefit of Creditors (Florida ABC)

Florida has a robust state-law alternative called Assignment for the Benefit of Creditors, governed by Chapter 727 of the Florida Statutes. The business assigns its assets to an independent assignee who liquidates them and distributes proceeds to creditors. ABCs are often faster and less expensive than Chapter 7 for an orderly wind-down, but they do not provide an automatic stay and they do not bind dissenting creditors the way bankruptcy does. We can compare an ABC to Chapter 7 for your specific situation.

Personal Guarantees: The Issue That Drives Most Decisions

For most small businesses, the owner has personally guaranteed the SBA loan, the commercial lease, the line of credit, the merchant cash advance, and often the trade vendors. The entity's bankruptcy does nothing to release those personal guarantees. Often the owner needs a separate personal Chapter 7 or Chapter 13 to address them.

In some cases the right answer is for the entity to wind down through Chapter 7 or an ABC while the owner files a personal Chapter 7 or 13 to discharge the personal-guarantee exposure. In other cases – especially where the owner wants to keep the business operating – a single Subchapter V reorganization can address business and personal debt in one proceeding.

Common Issues in South Florida Small-Business Cases

• Merchant cash advances. MCA companies routinely sue and execute against bank accounts shortly after a missed payment. A bankruptcy filing – either entity or personal – will stay these collection actions.
• Commercial leases. A burdensome lease can be rejected in Chapter 11, capping the landlord's damages claim at the greater of one year's rent or 15% of the remaining rent (not to exceed three years).
• SBA loans. SBA loans can be restructured in Chapter 11 or, in some cases, in a successful out-of-court Offer in Compromise process.
• Payroll tax (trust-fund) liability. Unpaid payroll trust-fund taxes are non-dischargeable for the responsible individuals personally. We address this exposure carefully in business cases.
• Florida sales tax. Unremitted sales tax has its own collection regime and is generally non-dischargeable for responsible individuals.

Entity Type Drives Strategy

The legal form of the business affects every step of the analysis. The three forms we see most often in South Florida are:

Sole Proprietorship

A sole proprietorship has no separate legal existence. The business and the owner are the same legal person, and all business debts are personal debts. There is nothing to "liquidate" as an entity. The owner files a personal Chapter 7 or Chapter 13 and addresses the business and personal debts together. Sole-proprietor tools of the trade are exempt under Fla. Stat. § 222.25(4) up to $1,000, and a Florida resident who does not claim the homestead exemption can use a $4,000 "wildcard" exemption that often covers business assets such as a single work vehicle, basic equipment, or modest inventory.

LLC or Corporation

An LLC or corporation is a separate legal person from its owner. The entity owns the assets, holds the contracts, and is the obligor on debts incurred in its name. The owner is generally not personally liable for entity debts – subject to several important exceptions: personal guarantees, piercing the corporate veil, trust-fund taxes (payroll withholding and Florida sales tax), and tortious conduct committed personally by the owner. An entity bankruptcy can address the entity-level liabilities; the owner's personal exposure is addressed through a separate personal filing or out-of-court settlement.

One critical wrinkle: a single-member LLC owned by an individual debtor is property of the individual's bankruptcy estate. When the individual files Chapter 7, the trustee steps into the shoes of the LLC member and can liquidate the company's assets. Multi-member LLCs receive different treatment because of the charging-order limitation. Structure matters and should be considered well before any filing.

Partnerships

General partners are personally liable for the partnership's debts. A general-partnership bankruptcy filing exposes the partners to potential deficiency liability under 11 U.S.C. § 723. Limited partners are generally insulated. Partnership cases require careful coordination across the partners' personal situations.

Wind-Down Without Bankruptcy

Not every failing business needs to file bankruptcy. Realistic non-bankruptcy alternatives include:

• Orderly out-of-court wind-down. Sell remaining inventory and equipment, pay critical vendors and final payroll, terminate the lease by negotiation, and dissolve the entity through the Florida Division of Corporations. This works when assets exceed liabilities or when the entity has no meaningful creditors who will sue.
• Workout agreements with key creditors. A handful of large creditors – the SBA lender, the landlord, the equipment lessor – will often accept reduced lump-sum payments or restructured terms in exchange for the certainty of payment rather than litigation.
• Assignment for the Benefit of Creditors. Faster and cheaper than Chapter 7 for an asset-light wind-down where no automatic stay or discharge is needed. See our discussion of bankruptcy alternatives for related options.
• Article 9 secured-party sale. A senior secured lender can foreclose under UCC Article 9 and sell the assets to a new entity, often the owner's new venture, in a commercially reasonable disposition.

The wrong wind-down can leave the owner personally exposed for fraudulent-transfer claims under Florida's Uniform Fraudulent Transfer Act (Fla. Stat. ch. 726), particularly where insider transfers, preferential payments, or inadequate consideration are involved. We screen for these issues in every wind-down engagement.

What to Expect During an Entity Chapter 7

1. Pre-filing preparation – gather the books, contracts, payroll records, sales-tax filings, and asset list. Identify pending litigation and any non-debtor co-obligors.
2. Petition filing – the petition, schedules, and statement of financial affairs are filed in the U.S. Bankruptcy Court for the Southern District of Florida. The automatic stay takes effect immediately.
3. Trustee appointment – a panel trustee is appointed and quickly assesses whether the case has assets worth liquidating or should be administered as a "no asset" case.
4. Section 341 meeting – the entity's representative (usually the owner) attends the meeting of creditors and answers questions under oath about the business's operations and assets.
5. Asset liquidation – the trustee sells remaining assets, often through auction, online platform, or private sale. Secured creditors are paid from collateral; the remainder flows to administrative claims, priority claims (including taxes), and unsecured creditors.
6. Case closing – the trustee files a final report; the case is closed. The entity remains in existence on the Division of Corporations records but has no assets and effectively ceases to operate.

Protecting the Owner While Wrapping Up the Business

For owners whose personal financial picture is already strained, the goal is usually twofold: shut down the business in a defensible way, and discharge the personal-guarantee and other personal liabilities. A typical sequence is:

• Stop incurring new business debt the owner has personally guaranteed
• Resign formally from positions on guaranties going forward (will not affect existing guaranties)
• Complete and remit all payroll-tax filings – trust-fund taxes are a personal liability for the responsible officers and are non-dischargeable
• Conclude the entity through ABC, Chapter 7, or out-of-court wind-down
• File personal Chapter 7 or 13 to discharge the personal guarantees and any leftover personal exposure

The timing between the entity event and the personal filing is important. Filing personally before the business has wound down can complicate the schedules and the means-test analysis. Filing too late can expose the owner to fresh collection actions on the personal guarantees. We sequence these events deliberately.

Frequently Asked Questions

Will my employees be paid?

Wages earned within 180 days of the petition, up to a statutory cap (currently $15,150 per employee), are a priority claim under 11 U.S.C. § 507(a)(4). In an asset case, employee wage priority is paid before general unsecured claims. In a no-asset case there is no distribution. Pre-petition wages and final paychecks often go unpaid – one of the hardest parts of a small-business closure.

Can I open a new business after filing?

Yes. There is no bankruptcy bar on starting another business. Practical issues include: any non-compete or non-solicitation obligations from the prior entity, vendor relationships (which often require fresh credit), and any successor-liability exposure if the new business uses the same name, location, employees, and customer base as the old one. We assess successor-liability risk before any "phoenix" arrangement.

What happens to pending lawsuits against the business?

The automatic stay halts all litigation against the debtor entity. Pending suits are stayed and creditors typically file proofs of claim. Suits that name the owner individually as a guarantor or co-defendant continue against the owner unless the owner files personally. Many business cases require a coordinated personal filing for that reason.

Does my franchise agreement survive a Chapter 11?

Franchise agreements are executory contracts under 11 U.S.C. § 365. They can be assumed, rejected, or assumed and assigned, subject to the franchisor's contractual rights and the anti-assignment provisions of the Bankruptcy Code. Franchise disputes are some of the most heavily litigated areas in small-business Chapter 11. Early communication with the franchisor often produces a workable outcome.

What if I have a merchant cash advance ("MCA") agreement?

MCA companies in Florida typically take a UCC-1 on all business assets and obtain a personal guaranty from the owner. The bankruptcy filing stays the MCA's collection activities. Whether the MCA is a true sale of future receivables (as the MCA contracts typically claim) or a disguised loan (as we frequently argue) is heavily litigated and affects priority and discharge. We have substantive experience with MCA defense in the Southern District of Florida.

Schedule a Consultation

Business bankruptcy decisions benefit from early planning. Filing too early can be a mistake; waiting too long is usually worse. Call 786-522-1411 or email [email protected] for a confidential discussion of where your business and your personal exposure stand and what options make sense. The Law Offices of Albert Goodwin, PA is located at 121 Alhambra Plaza, Suite 1000, Coral Gables, FL 33134, and represents small businesses throughout Miami-Dade, Broward, and Palm Beach counties.