Chapter 13 for a Business Owner: 6 Reasons It Rarely Works and 3 Where It Does

Chapter 13 was built for a wage earner with a paycheck the trustee can count, and a business owner fits it only after a good deal of trimming. The owner can keep running the business during the case; the Code says so plainly. The difficulty lies elsewhere, in six features of the chapter that sit awkwardly beside a company, a guaranty, and income that arrives in uneven weeks.

Three kinds of owner are well served by it all the same, and they appear at the end.

1. The Company Is Left Standing Outside the Courthouse

Only "an individual with regular income" may be a Chapter 13 debtor under 11 U.S.C. 109(e). No LLC or corporation qualifies, and an owner's Chapter 13 reaches the owner's guaranty while the company's own agreement with the funder continues untouched. The funder that cannot pursue the owner can still debit the company's account, sue the company, and enforce against the company's receivables. For an owner whose household depends on the company's cash, protecting the person while the business is collected against protects very little.

2. Stacked Guaranties Outgrow the Ceilings

Section 109(e) admits only debtors whose noncontingent, liquidated debts fall below two separate lines, $526,700 unsecured and $1,580,125 secured, as adjusted on April 1, 2025. Congress was considering a restored combined limit of $2.75 million in legislation that, as of late September 2026, had passed each chamber in its own version without becoming law. Three or four guaranteed advances, a line of credit and a vendor judgment can clear the unsecured line on their own.

3. The Codebtor Stay Stops at Consumer Debt

Chapter 13 has a feature that owners hear about and misapply. Section 1301(a) bars a creditor from collecting "a consumer debt of the debtor" from an individual liable on it with the debtor. A partner who co-signed the same merchant cash advance guaranty has signed a business obligation, and the provision does not reach that co-signer. The partner's exposure continues during the owner's case, and the partner (who may be the owner's spouse, sibling or oldest friend, and who will be sued on the same contract in the same court while the owner's plan is being confirmed down the hall) has no reason to expect the owner's filing to shelter anyone else.

4. Everything Earned After Filing Belongs to the Plan

This is the reason that decides most files. Under section 1306(a), the Chapter 13 estate includes not only what the owner held on the filing date but property acquired afterward and what the debtor earns from work performed after filing, until the case is closed, dismissed, or converted. The owner keeps possession under section 1306(b). The earnings, however, are the plan's raw material.

Section 1325(b) then asks, on an objection by the trustee or an unsecured creditor, that the plan either pay the objecting claim in full or commit every dollar of projected disposable income for the applicable commitment period, which is three years, or not less than five for a debtor whose current monthly income is at or above the state median. For a debtor engaged in business, disposable income excludes the expenditures necessary for the "continuation, preservation, and operation" of the business. That exclusion is generous on paper. It is also argued over, line by line, whenever receipts rise.

Payments begin fast. Section 1326(a)(1) requires the debtor to start paying the trustee within 30 days after the plan is filed or the case begins, whichever comes first, before anyone has confirmed that the amount works. And the plan does not stay fixed: under section 1329(a), after confirmation the debtor, the trustee, or the holder of an allowed unsecured claim may ask to increase or reduce payments or change their timing. A business that has a strong second year may find its creditors asking for a share of it.

That answers the owner who asks whether a new business can be started during Chapter 13. The Code does not forbid it in terms, and it does not need to, since whatever the new venture produces enters the estate under section 1306(a) and becomes part of the income picture the trustee reviews; the practical answer, including whether the trustee or the court must approve new credit the venture needs, depends on the plan's terms and on the practice of the particular trustee, which counsel should confirm before the venture signs a lease.

A good year, in other words, belongs partly to the creditors.

5. The Liquidation Test Puts a Price on the Business

Section 1325(a)(4) requires that each unsecured creditor receive at least what it would have received had the debtor's estate been liquidated in Chapter 7. For an owner with real equity in the business, in equipment beyond what the exemptions protect, or in a house, that value sets a floor under the plan. The federal exemption for tools of the trade exists but is modest, and state exemptions differ. An owner who keeps a valuable business in Chapter 13 pays for it, in effect, over the life of the plan.

6. A Percentage of Every Payment and Five Years of Supervision

A standing trustee's percentage fee is taken from plan payments, with ten percent the statutory ceiling for a debtor who is not a family farmer under 28 U.S.C. 586(e); the actual rate is fixed by district. The trustee reviews budgets, tax returns and operating results for the life of the plan. Some owners find that tolerable. Many who have run a business on their own judgment for a decade do not.

For an owner comparing Chapter 13 with a negotiated resolution of a few guaranteed advances, Delancey Street handles the second half of that comparison. The company settles business debt; not a law firm, it leaves plan design and eligibility to counsel. Its first review of the contracts and guaranties is free and kept private, and legal questions are routed to attorneys licensed apart from it. An owner who needs the stay, the cure, or the tax schedule described below needs bankruptcy counsel, whatever a settlement conversation suggests.

And 3 Where It Does

A proprietor behind on the house. Section 1322(b)(5) lets the plan cure a default within a reasonable time while regular payments continue on a debt whose last payment falls due after the plan ends. A sole proprietor whose mortgage fell behind while receipts slumped can keep the house and the trade together, provided the income supports both.

An owner with priority tax debt. Section 1322(a)(2) requires full payment of priority claims, but in deferred cash payments over the plan, unless a holder agrees to less. For a proprietor whose largest creditor is a taxing authority, a court-supervised schedule with the automatic stay behind it can be worth more than the reduction a negotiation might have offered on smaller debts.

A steady trade under the ceilings. A self-employed debtor who "incurs trade credit in the production of income" is engaged in business under section 1304, and may keep operating. A plumber, a bookkeeper, or a food truck with regular receipts, debts below both limits, and nonexempt property worth keeping can pay its value over three to five years rather than surrender it to a Chapter 7 trustee. The fit here is close. It is also narrow.