Business Bankruptcy in Colorado: 5 Facts for a Denver Filing

If you operate a small business in Denver and find you can’t make your debt payments, there are three bankruptcy options, Chapter 7, Chapter 13, and a new form of Chapter 11 called Subchapter V. The right one depends on business structure, debts, and personal guarantees. Each comes with its own costs and ramifications, including the possible liquidation of your assets. Before you choose one of these options, you should know the differences and the possible outcomes of each.

Chapter 7 or Chapter 13

If your business is a sole proprietorship, the business is not considered a separate legal entity from its owner. You must file an individual bankruptcy, either Chapter 7 or Chapter 13. If your business is a corporation, limited liability corporation, limited partnership, or other entity, it is a separate legal entity. In that case, you can choose from the options of Chapter 7, Chapter 11, or the new Subchapter V bankruptcy. Like individuals, businesses can liquidate debts and assets (Chapter 7) or reorganize debts and keep the business going (Chapters 11 or Subchapter V).

A Chapter 13 bankruptcy allows you to repay your debts and keep your business going, but it comes with strict limitations. It requires a reorganization of debts with a payment plan over 3 to 5 years. Only businesses that are sole proprietorships can file Chapter 13 bankruptcy. The debt limits are strict: non-contingent, liquidated, unsecured debts (debt that is not secured by property) must be under $526,700, and secured debts (secured by property) under $1,580,125. If your debts exceed these limits, Chapter 11 is a better option. These amounts are subject to change so be sure you have the most recent figures if you are considering filing for Chapter 13.

Unlike Chapter 13 which allows the business to continue operations, Chapter 7 closes a business down. A Chapter 7 proceeding will liquidate business assets to satisfy creditors. A corporation or partnership does not receive a discharge in a Chapter 7 bankruptcy. A Chapter 7 discharge only applies to individuals. If an owner of the company made a personal guarantee, he or she will remain personally liable for the company’s debts. Creditors may file suit against him or her after the Chapter 7 bankruptcy of the company is final. If a guarantor of the business debt is you, you will have to file bankruptcy in your own name to discharge any personal guarantees of company debt.

When you file in your own name, state law determines what property is protected or exempt from bankruptcy creditors. Colorado has exemptions that allow individuals to keep some of their property in a bankruptcy. If you operate a sole proprietorship, you may claim the tools of the trade exemption to keep property that is necessary for your work. Business tools with a value of up to $60,000 can be exempted. For a secondary occupation, tools of the trade can be exempted up to a value of $20,000.

A Streamlined Version of Chapter 11

If you operate a business as a corporation, LLC, or limited partnership, you do not qualify for Chapter 13, but you may qualify for a Subchapter V bankruptcy. Subchapter V is a streamlined version of Chapter 11 that allows small businesses to reorganize their debt and keep the business operating after the bankruptcy. Subchapter V came into existence with the Small Business Reorganization Act of 2019 as a way for small businesses to take advantage of the options of a Chapter 11 with less formality and expense. But not all businesses can qualify. A small business debtor must have debts of $3,424,000 or less. At least 50% of the debts must be from the operation of the business. A bill, H.R. 7730, passed both houses of Congress on September 28, 2026, which, if signed into law by the president, will raise the debt limit of Subchapter V to $7.5 million.

You may have been reluctant to pursue Chapter 11 bankruptcy in the past because the process is complicated and is expensive. Subchapter V has several advantages over a regular Chapter 11 bankruptcy. The first is that only the debtor can propose a plan. The terms of the reorganization plan must be submitted to the bankruptcy court within 90 days after the petition is filed. There are fewer formalities in Subchapter V bankruptcy compared to a Chapter 11 filing, and the debtor does not need an official creditors’ committee to proceed. It does not usually require a separate disclosure statement nor creditor votes. Subchapter V also requires the appointment of a trustee who acts as a mediator between the debtor and the creditors. Subchapter V removes the absolute priority rule. It allows equity owners to keep their interest, even if creditors are not paid in full. The plan must be “fair and equitable.” And it requires that “disposable income” is contributed to the repayment plan.

Personal Guarantees

If you form an LLC or corporation to run your business, it’s generally safe to assume that your personal assets are protected. However, the separation between you and the business can be lost if you used personal assets or credit cards to pay business expenses, or if you guaranteed business loans with your personal credit, especially if you took out a SBA Economic Injury Disaster Loan (EIDL) above $200,000 during the pandemic. If your personal assets were used as collateral for business loans, they may be at risk. For that reason, it is important to know which debts have personal guarantees and the status of each debt.

Piercing the corporate veil is a term used when creditors are able to reach a corporation’s principals, LLC members, or shareholders for business debts. Colorado courts will “pierce the corporate veil” and go after your personal assets only rarely. If you failed to hold meetings, use separate bank accounts, or keep the business active, it will be easier for a creditor to use piercing the corporate veil and hold you personally liable for the debts of the business.

Note also that collected sales taxes and payroll withholding are not typically dischargeable in any bankruptcy. Those are often called trust fund taxes. Even if the business closes or files for bankruptcy, the IRS or Colorado Department of Revenue can assess the tax liability against you personally. You could be required to pay them even if your other business debts are wiped out.

Whichever chapter you choose, a bankruptcy filing is started by filing a petition with the U.S. Bankruptcy Court for the District of Colorado, at 721 19th Street in Denver. If the debtor is an individual, he or she generally must undergo counseling with an approved agency within the 180 days before filing. Once a petition is filed, it stays (stops) the collection of debts, and if a Subchapter V or Chapter 11 is filed, it allows the business to continue operations.

In a reorganization bankruptcy, you can “assume” or “reject” the lease of business space. An assumption means you choose to keep the lease and remain bound by it. A rejection means the lease is broken, you move out, and the balance owed on the lease is turned into an unsecured claim. In a Chapter 7, the trustee can either assume or reject a lease. If the trustee chooses not to assume, it is deemed rejected after 120 days. If the lease is rejected, you can still be sued for rent if it is personally signed by you.

Before you file, make a list of debts and assets. Look for what type of bankruptcy you qualify for. It is essential to review your debts and see if any personal guarantees exist and, if so, how strong the claim is to any personal assets. Each debt should be analyzed separately. Making sure you are filing the right bankruptcy, whether it’s for a business or personal matter, will depend on your specific circumstances. Consult a Colorado bankruptcy attorney to review your business’s particular issues.