Business Bankruptcy in Ohio: 6 Facts for Columbus and the State's Two Districts

There are two federal bankruptcy courts (districts) in Ohio: the Northern District and the Southern District. You file in the district where you operate the business. A business can file Chapter 7, where the company shuts down, or Chapter 11, where it restructures, keeps going, and repays the creditors over time, and an owner may use Chapter 13, which is reserved for individuals and sole proprietorships. Either way, any personal guarantee of business debts may lead to those debts coming after your personal assets. Sometimes a workout or debt settlement avoids the need for bankruptcy.

To file in a particular district, a business generally must show its principal place of business or its main assets were there for the 180 days before filing, or the longer part of the 180 days before filing. The Southern District of Ohio Bankruptcy Court includes the Columbus courthouse at 170 North High Street, and the division covers thirty counties including Franklin, Delaware, Licking, Fairfield, Pickaway, Madison, and Union.

Chapter 7 is for liquidation. If you truly have no way forward, the bankruptcy trustee takes over and sells the assets, and pays the creditors according to the rules. The process is generally complete in a few months. A liquidating bankruptcy will only wipe out your liabilities if you are an individual. So a corporation or LLC does not get a discharge.

Chapter 11 is the reorganization process for a business that still has a real chance at profit. The business generally keeps operating, and crafts a repayment plan that passes muster with the creditors and court, eventually ending in a discharge. The best-known advantage is it provides a chance to renegotiate leases, service contracts, and other deals that the business finds suffocating. Chapter 11 is complex, and the court demands mountains of information about debts, assets, and operations. There is a smaller, simpler version called Subchapter V, but you are only eligible if your noncontingent, liquidated debts total no more than $3,424,000, as of April 1, 2025.

Chapter 13 is reserved for individuals or sole proprietors (businesses with no legal identity apart from the owner). A Chapter 13 is a repayment plan, usually lasting 3 to 5 years. You include both personal and business debts and creditors in the plan. Along the way, a business may be able to keep its assets and repay only a fraction of its unsecured debts. If your company is a LLC, partnership, or corporation, you cannot use this plan. But the owner of a small business organized that way can still file Chapter 13 personally to reorganize debts that include any business obligations where the owner has given a personal guarantee.

Choosing can be tough, and depends on whether the business is still viable and needs relief from certain debts to keep going, how debts are structured, whether the owner gave personal guarantees for business debts, the legal structure of the business and a desire to protect assets. Generally, you might choose Chapter 11 if there is a real chance of recovery and you want the business to keep going. If you are a sole proprietor and want to keep the business running, you might file Chapter 13 to give yourself time and protection from creditors while you catch up and rebuild. Finally, if there is no reasonable chance of recovery, you may want Chapter 7.

There are filing fees of $338 for Chapter 7, $1,738 for Chapter 11, and $313 for Chapter 13. Any incorporated business must have an attorney file, the Northern District court rules say. However, any individual or sole proprietor who wants to file personally can go ahead without an attorney.

Your Personal Stake

In thinking about your options, you also have to consider your personal stake. Sole proprietors are personally liable for the debts. But LLCs and corporations do offer owners some protection, if the legal organization is maintained and not breached by mixing personal and business finances. However, liability may come from a personal guarantee of the business debt. Sometimes you need bankruptcy protection for your personal assets.

Once a personal bankruptcy is done, you have a discharge, and the discharge wipes out most debts. The most common discharged debts are credit cards, medical bills, personal loans, back rent, and utility bills. The process has different effects depending on whether you chose Chapter 7 or Chapter 13.

If you are filing in Chapter 13 or if you are personally an individual or sole proprietor, you have to take a credit counseling course within 180 days before filing, with a court-approved agency. Ohio is an opt-out state. If you file for yourself personally (including sole proprietorships), the homestead exemption to protect your home’s equity is $182,625 (figures in effect as of April 1, 2025). There is also an exemption for tools of trade, up to $3,200.

Beyond these personal rules, what does filing a business bankruptcy actually do? There is the immediate “automatic stay” that instantly stops most debt collection efforts as soon as a case is filed. But of course, a business’s credit is badly affected for years afterward. You also have to make a detailed financial disclosure to the court, and survive a meeting of creditors where you answer questions about the business’ affairs under oath. In a Chapter 7 or Chapter 13, the court names a trustee to oversee the process. In Chapter 11, the owner generally stays in control.

Before you make any choice, you should consider carefully your alternatives. You may be able to negotiate directly with creditors to restructure debt, or you could sell non-essential assets and cut costs or expand revenue. Sometimes a company can close its doors without going to court, especially when debts aren’t out of control.

Filing bankruptcy is not the end of the road, but a decision to get to the next step in rebuilding or reorganizing your business. Each option affects your future and your credit.