File BK For Self Employed Graphic Designer

[georgepesos]

A self employed graphic designer in California got an SBA loan in 2021 for 185k for "BIZ #1" and can't afford to make the monthly payments anymore. What will happen if filing Ch.13 ?
-No assets (all digital)
-No real estate
-No expensive equipment, just a few computers
-Owns another similar online business, "BIZ 2" with a separate business checking account, and selling email marketing services, which is making money but very little.
-70k in credit card debt

based on this, is BK the best option? pros? cons?

where will the SBA and BK courts likely draw the line in terms of shutting down the other business (Biz#2)? To sustain living income, graphic design consulting is the only avenue for income, so how will the BK court likely handle?

[shipo]

Lots of moving parts; your best bet would be to interview a few attorneys and get their take.

[justbroke]

How the businesses are organized will be the most important part. If they are sole proprietorships then both businesses and the person are the same entity (alter egos of each other). That means that you'd likely need to shutdown both businesses as part of the Chapter 13.

I don't know why you would expect a Chapter 13. If the majority of the debt is "non-consumer" debt (i.e. SBA loans and other business guarantees), then the debtor would qualify for a Chapter 7 and would not need to complete the means test.

This is not a simple bankruptcy case. As shipo has aptly written, you're going to need a bankruptcy attorney to wade through this business, the inventory, equipment, fixtures, outstanding receivables, and a host of other things. I'm sure that the SBA loan has a personal guarantee which a bankruptcy could fix. The issue will be that the SBA probably also has UCC liens against all your equipment and perhaps receivables and other "property" of the business. If that is the case, which is highly likely with a $180K loan from the SBA, then you'll need to navigate this correctly (for example, don't liquidate assets!).

As far as switching over to the graphics design business... you can always restart fresh. I mean, that's the whole thing about bankruptcy--a fresh start.