Understanding Small Business Bankruptcy in Northern Ohio

Running a small business in Northern Ohio is no small feat. Whether you operate a solo practice in Cleveland, manage a storefront in Medina, or run a family-owned LLC in Strongsville, financial challenges can arise that threaten your business and personal livelihood. If debts are piling up and revenue isn’t keeping pace, it may be time to explore legal solutions — including small business bankruptcy. One of the most common options for small business owners is Chapter 7 bankruptcy, but depending on your business structure and goals, Chapter 13 or Chapter 11 may also be worth considering.

At Nicole Metzger Law, we help small business owners across Cuyahoga County, Medina County, and the broader Northern Ohio region understand their rights and navigate financial crossroads with clarity and confidence.

Small Businesses Bankruptcy Options

Here’s a high-level comparison of the three most common types of bankruptcy small business owners consider:

Let’s break down what each option means depending on how your business is legally structured.

Sole Proprietorships and Independent Contractors

If you’re a sole proprietor or independent contractor, you and your business are considered the same legal entity. That means any bankruptcy filing is done personally and includes both your business and personal debts.

Chapter 7 for Sole Proprietors

Chapter 7 is the most common bankruptcy path for sole proprietors in areas like Medina, Cleveland Heights, Parma, and across Northern Ohio. It allows you to:

• Eliminate unsecured debts like credit cards, personal loans, and vendor accounts

• Use Ohio’s bankruptcy exemptions to protect essential assets (like a vehicle, tools, or home equity)

• Potentially continue operating your business — especially if it requires minimal physical assets

Best for: Business owners seeking a financial reset or looking to shut down without leaving personal debts behind.

Chapter 13 for Sole Proprietors

Chapter 13 offers a structured repayment plan (3–5 years), allowing you to:

• Keep operating your business

• Catch up on secured debts like equipment loans or tax obligations

• Retain important business or personal assets

Best for: Sole proprietors with steady income and a desire to stay in business while repaying a portion of their debt.

Limited Liability Companies (LLCs)

If your business is registered as an LLC, it is a separate legal entity from you. This affects how and whether bankruptcy protections apply.

Chapter 7 for LLCs

An LLC can file for Chapter 7 to:

• Liquidate the business and close down formally

• Turn over assets to a court-appointed trustee who sells them and distributes proceeds to creditors

Important: LLCs do not receive a discharge in Chapter 7. After liquidation, the business ceases to exist, and any remaining debt is simply unpaid.

Best for: LLCs that are no longer viable and need an orderly, legal process to close and resolve debts.

Chapter 11 for LLCs

Chapter 11 allows LLCs to:

• Reorganize while remaining open

• Negotiate payment terms with creditors

• Restructure debts and potentially emerge stronger

Small businesses may qualify for Subchapter V, a simplified form of Chapter 11 designed to reduce cost and complexity.

Best for: Viable LLCs in Northern Ohio with stable revenue but short-term cash flow issues or unmanageable debt loads.

Note: LLCs cannot file Chapter 13.

Corporations (Inc.)

Like LLCs, corporations are legally distinct from their owners. If your business is incorporated, here’s what you need to know:

Chapter 7 for Corporations

Filing Chapter 7 for a corporation in Northern Ohio means:

• The business is permanently closed

• Assets are sold by a bankruptcy trustee

• Proceeds are used to pay creditors

• Remaining debts are not discharged

Best for: Corporations that are shutting down and want a legal, transparent resolution process.

Chapter 11 for Corporations

Corporations may also use Chapter 11 (or Subchapter V) to:

• Stay open

• Reorganize debt

• Work toward long-term viability

Best for: Businesses with operations worth saving, but significant debt that can’t be managed under current terms.

What About Personal Guarantees?

Even if your business is a separate entity, many small business owners in Cuyahoga and Medina counties have signed personal guarantees for business debts — such as commercial leases, business credit cards, or loans.

In these cases, you may still be personally liable even if the business files bankruptcy.

A personal Chapter 7 bankruptcy may be able to discharge your personal liability for these debts, offering true financial relief.

What Chapter 7 Small Business Bankruptcy Can and Can’t Do

Chapter 7 Small Business Bankruptcy Can:

• Eliminate qualifying personal debts (for sole proprietors and personal guarantees)

• Liquidate and close LLCs and corporations efficiently

• Provide legal closure for struggling businesses

• Stop collection efforts and creditor harassment

Chapter 7 Small Business Bankruptcy Cannot:

• Discharge debts for LLCs or corporations

• Prevent asset seizure from secured creditors

• Keep a business open (except for certain sole proprietors with exempt assets)

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Find the Right Small Business Bankruptcy Strategy for You

Every small business in Northern Ohio is different — and so is every bankruptcy case. Whether you’re in Medina County, Cuyahoga County, or elsewhere in the region, the key is understanding what protections are available based on your business structure, financial situation, and goals.

At Nicole Metzger Law, we offer:

• Personalized legal guidance for small business owners across Northern Ohio

• Clarity around which bankruptcy option is right for you

• Support through every step of the filing process — from strategy to resolution

If you’re unsure whether Chapter 7 is right for your situation, we’re here to help you evaluate your options and move forward with confidence.

Schedule a consultation today to learn more about small business bankruptcy in Ohio — and start planning your next step forward.

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