How Bankruptcy Laws Differ for Individuals and Businesses
July 19, 2025
When financial obligations become too burdensome, bankruptcy can offer a path forward. Whether you're a single wage earner in Tampa or a business owner in Atlanta, understanding the difference in how bankruptcy applies to each can help shape the decisions ahead.
The Law Offices of David K. Blazek, P.C., helps individuals and businesses in Florida and Georgia find that path through effective legal solutions. With a strong background in consumer credit analytics and decades of experience, the firm provides reliable guidance to those seeking relief from overwhelming debt in Tampa, Miami, Jacksonville, and Orlando, as well as Atlanta, Macon, and Columbus in the state of Georgia.
Individual Bankruptcy – Personal Financial Relief
For individuals, bankruptcy is most often a personal decision made to address unmanageable debt, like credit cards, medical bills, or foreclosure. The two most common types of individual bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy allows for a complete discharge of most unsecured debts. It’s available to people who pass a means test, which compares income to the median income in their state.
Chapter 13 bankruptcy involves a structured repayment plan over three to five years. It can help individuals catch up on missed mortgage payments, avoid foreclosure, and keep their property while gradually repaying debt.
Both forms are designed to give individuals a fresh financial start, although they differ significantly in terms of eligibility, asset protection, and long-term impact.
Business Bankruptcy – Restructuring or Winding Down
Unlike individuals, businesses may file under Chapter 7 or Chapter 11, each serving a different purpose depending on whether the company intends to close or restructure.
Chapter 7 bankruptcy for businesses is used when a company is closing its operations. Assets are sold to repay creditors, and the business usually dissolves once the process is finalized.
Chapter 11 bankruptcy is aimed at businesses that want to continue operating while reorganizing their debts. It involves submitting a detailed reorganization plan to the court, which must be approved by creditors.
This distinction highlights differing goals—individual bankruptcy aims to protect the filer, while business bankruptcy serves as a strategy to either save or close a business.
Eligibility and Procedural Differences
The bankruptcy process begins with filing a petition, but the rules differ depending on whether the filer is an individual or a business.
For individuals:
Means test application: Individuals must meet income requirements for Chapter 7.
Credit counseling: Individuals must complete an approved course before filing.
Trustee involvement: A trustee is appointed to assess assets and oversee liquidation or payment plans.
For businesses:
Ownership type matters: Sole proprietorships file as individuals, while corporations and LLCs are treated as separate entities.
Plan submission: Businesses filing under Chapter 11 must submit a reorganization plan that satisfies creditors.
Court supervision: Business bankruptcies often involve more court oversight and longer timelines.
These procedural differences reflect how personal financial distress is often more focused on relief, whereas business bankruptcy is driven by financial restructuring and creditor satisfaction.
Asset Treatment and Exemptions
How property is treated in bankruptcy also varies.
For individuals:
Exemptions protect necessities: States offer exemptions for homesteads, vehicles, retirement accounts, and personal items.
Non-exempt assets sold in Chapter 7: If an individual has valuable property not protected by exemptions, it may be sold to repay creditors.
For businesses:
Few exemptions apply: Business property is generally not exempt, especially in a Chapter 7 case. Equipment, inventory, and receivables may all be liquidated.
Chapter 11 allows the use of assets: Businesses can retain and use assets in the ordinary course of business during reorganization.
These differences emphasize the protective nature of individual bankruptcy compared to the more transactional approach for businesses.
Creditor Interaction and Debt Priority
The relationship with creditors also diverges depending on the type of bankruptcy and the filer.
For individuals:
Automatic stay applies: Creditors must immediately stop collection actions once bankruptcy is filed.
Priority debts survive: Obligations like child support, certain taxes, and student loans are rarely discharged.
For businesses:
Secured creditors take precedence: Lenders with collateralized claims often have more leverage during business proceedings.
Creditor committees may form: In Chapter 11, a committee of creditors may be appointed to represent the interests of all unsecured creditors.
Although the automatic stay protects both individuals and businesses, the way creditors are treated during and after the process can vary widely.
Impact on Credit and Long-Term Consequences
Bankruptcy doesn’t just end with a court decision—it leaves a lasting footprint on credit history and future options.
For individuals:
Credit score damage: Chapter 7 remains on a credit report for 10 years, Chapter 13 for 7 years.
Limited borrowing power: Securing new loans or credit cards may be difficult in the short term.
Fresh start opportunity: Despite the damage, many filers rebuild credit within a few years through responsible financial behavior.
For businesses:
Business closure consequences: A Chapter 7 filing usually results in permanent closure.
Reputation concerns: Chapter 11 can affect relationships with suppliers, lenders, and clients.
Rebuilding phase: Successfully emerging from Chapter 11 can show resilience and responsible management.
While both types of bankruptcy affect credit, the long-term implications vary depending on how the debt is resolved and what actions are taken afterward.
When Bankruptcy May Be the Right Step
Deciding when to file for bankruptcy depends on the unique circumstances facing an individual or business.
Bankruptcy may be appropriate for individuals who:
Face wage garnishment or foreclosure
Are behind on unsecured debt payments
Have no feasible repayment plan for their debts
Businesses might consider bankruptcy if they:
Can’t meet payroll or vendor obligations
Face significant litigation or judgment debt
Need restructuring to keep the business alive
While not a decision to make lightly, bankruptcy can provide legal tools to regain control of a financial situation.
Alternatives to Bankruptcy
Before filing, it may help to review all available options.
For individuals:
Debt consolidation: Merging debts into one payment with better terms.
Negotiation: Working with creditors to reduce balances or interest rates.
Credit counseling: Receiving professional advice on budgeting and repayment strategies.
For businesses:
Out-of-court workouts: Renegotiating terms directly with creditors.
Asset sales: Selling non-essential assets to increase liquidity.
Bridge financing: Seeking temporary funding to address immediate cash flow issues.
These alternatives won’t work in every situation, but they might provide relief without a formal court process.
Bankruptcy Fraud and Legal Compliance
All filers must act honestly and transparently throughout the bankruptcy process. Courts and trustees closely examine filings for accuracy.
Common red flags include:
Hiding or transferring assets before filing
Providing false information in paperwork
Running up debt with no intent to repay
Violations may lead to dismissal of the case, criminal charges, or being barred from future filings. Having a lawyer with deep financial knowledge can help individuals and business owners follow the rules closely and protect their interests.
Why Working With a Bankruptcy Lawyer Matters
Choosing a legal professional to help with a bankruptcy case can improve the chances of a favorable outcome. David K. Blazek is uniquely qualified due to his membership in the State Bars of Wisconsin, Georgia, and Florida and his experience in consumer credit analytics.
A bankruptcy lawyer can help:
File correctly and meet deadlines
Represent the filer in hearings and negotiations
Evaluate if Chapter 7, Chapter 11, or Chapter 13 is the right fit
Protect as many assets as possible
Whether an individual or a business is struggling financially, having someone who understands the complicated nature of debt and credit law can make all the difference.
Contact the Firm Today
If you're overwhelmed by debt and considering bankruptcy, The Law Offices of David K. Blazek, P.C. is ready to help. The firm proudly serves clients throughout Florida - Tampa, Miami, Jacksonville, and Orlando; as well as throughout Georgia - Atlanta, Macon, and Columbus. Cal now for reliable legal support throught the bankruptcy process.