What Kind of Bankruptcy Do I File If I'm a Business Owner in Texas?

 Posted on April 29, 2026 in Bankruptcy

There are several types of bankruptcy, and each serves a different purpose. If you’re a business owner with debt who’s decided that the best way forward is to file for bankruptcy, it’s important to choose the right one for your situation. A Fort Bend County bankruptcy lawyer can help you figure out which option fits your situation and what to expect from the process in 2026.

Does the Type of Business You Own Affect Which Bankruptcy You Should File?

Under 11 U.S.C. § 109, eligibility to file under each bankruptcy chapter depends on factors like whether you're an individual or a business entity and what the size of your debt load is. Business structure matters in filing for bankruptcy.  A sole proprietor is personally responsible for business debts, which means your personal and business finances are legally the same thing. Owners of LLCs and corporations have some separation between personal and business liability. That doesn't always protect them in practice, especially if they signed personal guarantees on loans.

Consider a breakdown of the most common bankruptcy chapters for business owners.

Chapter 7

Chapter 7 is a liquidation bankruptcy. A trustee sells non-exempt assets to pay creditors, and the remaining eligible debts are discharged. For sole proprietors, this can wipe out both personal and business debt in one filing. For LLCs and corporations, Chapter 7 closes the business.

If your business is no longer viable and you want a clean break, Chapter 7 may be worth considering.

Chapter 11

Chapter 11 is a reorganization bankruptcy. Rather than liquidating, you propose a repayment and reorganization plan that lets the business keep operating while paying back creditors over time. It's available to businesses of all sizes and to individuals with very high debt levels.

Chapter 11 is more complex and more expensive than other options, but it can be the right tool when the business is worth saving. Courts and creditors will evaluate your reorganization plan. You'll need to show that it's realistic and in the creditors' best interests.

Subchapter V of Chapter 11

Subchapter V is a streamlined version of Chapter 11 created specifically for small businesses. It's faster, less expensive, and has less court oversight than a traditional Chapter 11. To qualify, your total secured and unsecured debts must fall below a certain threshold. If your business qualifies, Subchapter V can make reorganization much more accessible than the standard Chapter 11 process.

Chapter 13

Chapter 13 is only available to individuals, not business entities. However, sole proprietors can use it to reorganize both personal and business debts under a three-to-five-year repayment plan. It lets you keep assets you might lose in a Chapter 7 while catching up on things like mortgage arrears or back taxes.

If you're a sole proprietor who wants to keep your business running and has a steady income to fund a plan, Chapter 13 is a good option.

What Happens to Your Personal Assets When a Business Files Bankruptcy?

If you're a sole proprietor, your personal assets are on the table because there's no legal separation between you and the business. If you operate through an LLC or corporation, your personal assets may be protected unless you personally guaranteed business debts, which is common with small business loans and commercial leases.

Texas has strong exemption laws that protect certain personal assets regardless of which chapter you file. Your homestead, retirement accounts, and certain personal property may be shielded even in a Chapter 7.

What Should You Do Before Filing Bankruptcy as a Business Owner?

Before filing anything, it's worth taking a careful look at your full financial picture – personal and business together. Some questions worth working through with an attorney include whether the business is worth saving, what debts are personally guaranteed, and whether there are assets that could be protected under Texas exemptions. Rushing into the wrong type of bankruptcy can cost you significantly.

Call a Harris County Bankruptcy Lawyer Today

At The Fealy Law Firm, PC, we focus on helping good people through hard times and giving them the tools to take control of their finances. Attorney Vicky Fealy is Board-Certified in Consumer Bankruptcy Law by The Texas Board of Legal Specialization and has helped thousands of people and businesses find relief from debt. Call 713-526-5220 today to schedule a free consultation with our Fort Bend County bankruptcy attorney.