Business Bankruptcy in Utah: 5 Facts About the District of Utah

When your business dips into revenue trouble, the debts and unpaid bills are a daily problem on the desk, and unfortunately, your family is affected as well. If you’re a Utah business owner with overwhelming debt, you may want to think about bankruptcy. Here are five facts that can help you get started:

• The state has just one bankruptcy court for all cases, and it is located in Salt Lake City;
• if your business is an LLC or a corporation, you will need a lawyer to file, because that court will not allow entities to represent themselves;
• Chapter 7 gives a company no discharge;
• Subchapter V lets business owners keep the entity;
• and the debtor’s meeting with creditors can be by phone or Zoom.

All bankruptcy cases in Utah are handled by a single court, the U.S. Bankruptcy Court for the District of Utah. The venue for every bankruptcy case is the Frank E. Moss U.S. Courthouse, 350 South Main Street, 3rd Floor, in Salt Lake City. Even if your business is located in St. George, your petition is sent there.

Whose Debt It Is

The kind of structure determines whose debt it is. If the owner is a sole proprietor, the court regards the company’s debt as belonging to the person; that person can use a personal bankruptcy, whether Chapter 7, Chapter 13 or Subchapter V, though for Chapter 13 the unsecured debt has to be under $526,700 and secured debt under $1,580,125. A company, whether a partnership, corporation, LLC, or trust, cannot represent itself without an attorney. The rule is in the court’s local procedures. The clerk’s office staff are forbidden by law from giving legal advice or filling out forms. There is no do-it-yourself for a company.

The filing fee for Chapter 7 is $338. But unless the company is a sole proprietorship, it cannot receive a discharge in Chapter 7. It is for businesses that do not intend to keep operating.

Keep in mind that most small business lenders require owners to sign personal guarantees, so if the business cannot repay, they are held personally liable and their personal assets are at risk. Also, debts the owner guaranteed personally are not erased by the company’s bankruptcy; the creditors can sue the owner to recover what they are owed. Resolving both sides sometimes requires a coordinated plan, possibly a personal bankruptcy too.

Subchapter V

If the company is healthy enough to survive, it is sometimes possible to reorganize in Chapter 11. A new law went into effect in February 2020, aimed at helping small businesses survive. Subchapter V, sometimes called Sub-V, is meant to help companies and sole owners who can operate successfully. The company must be engaged in business. It can be a partnership, corporation, LLC, or sole proprietorship. At least half the debt must be from its operations. The total debt cannot exceed $3,424,000.

During the Covid-19 crisis, Congress raised the limit to $7,500,000 through June 21, 2024. That limit reverted to $3,024,725 from June 21, 2024 through March 31, 2025. Adjusting for inflation, it then rose to $3,424,000 from April 1, 2025 through March 31, 2028. After that, it will change again for inflation every three years. Check online and make sure what debt amount applies to your business now.

In a Sub-V case, the debtor stays in possession of the business. The debtor pays no quarterly fees. Only the debtor may file a plan, and it must be filed within 90 days. The plan lasts 3 to 5 years. The trustee’s role is facilitator, not liquidator. Payments are made from disposable income, meaning money left after paying for daily operating costs and business needs.

This chapter is quicker and simpler than a regular Chapter 11. Usually, no unsecured creditors committee is involved. Most of the time, there is no disclosure statement. The deadline for filing a plan can be extended, but only for delays the debtor is not reasonably to blame for. Also, after the debtor finishes paying, there is an unsecured debt discharge.

Sub-V has one major advantage: it allows company owners who propose a plan over objections to confirm it without paying creditors in full. In normal Chapter 11, shareholders and other owners generally keep nothing unless creditors receive all they are owed in a plan. So a family business wanting to protect ownership faced an impossible choice. Now, under Subchapter V, it may be possible for a business to survive even if creditors will not vote for a plan.

As for the meeting with creditors, until further notice, Chapter 11 bankruptcy meetings with creditors are conducted by telephone. The other Chapters’ meetings are by Zoom, for cases filed on or after December 1, 2022. You will not have to make a trip to the courthouse.

A Real Business to Save

A crucial issue, no matter which chapter is chosen, is whether there is a real business to save. Sometimes a company with a real market but a temporary debt problem can be saved; a reorganization lets it work through a plan; if the core business model is broken, it may be better to shut it down in an orderly fashion and not risk the owner’s personal finances. Sit down with your lawyer; compare side by side what may be lost and saved under each option; weigh your potential future against the time and costs of a bankruptcy. Assess with your lawyer the personal guarantee risks.