Bankruptcy does not always mean closing shop. In Utah, small businesses use federal bankruptcy relief while benefiting from state exemptions that help preserve critical assets.

The two most common routes are:

• Chapter 7 (Liquidation): Best when operations cannot continue. Assets may be liquidated to pay creditors, with remaining eligible debts discharged.
• Chapter 11 (Reorganization): For businesses that can keep operating while restructuring debt. Subchapter V streamlines this process for small businesses.

Both paths serve different goals. The right choice depends on finances and whether you plan to remain in business.

Chapter 7: Generally requires showing little to no disposable income after expenses. Often used when the business has shut down or cannot realistically recover.

Chapter 11 Subchapter V: Designed for small businesses under current debt limits and actively engaged in commerce. It emphasizes reorganization, not liquidation, and owners typically remain in control during the case.

Checklist for qualification:

• Review total debts, income, and cash flow
• Decide whether operations can realistically continue
• List assets and outstanding obligations
• Consult a Utah bankruptcy attorney to confirm eligibility under federal rules and local practice

Utah law exempts certain property from liquidation, helping owners preserve essential tools and equipment. Examples include:

• Business equipment and inventory (subject to Utah statutory limits)
• Up to $3,000 in personal tools of the trade
• Office furniture, computers, and supplies
• Certain insurance policies or retirement accounts

Exemptions are outlined in Utah’s debtor-creditor statutes (Utah Code Title 78B). Knowing what is protected helps you plan and avoid unnecessary loss.

• Chapter 7: Eliminates eligible unsecured debts (for example, vendor bills or credit cards) but may require liquidation of non-exempt assets.
• Chapter 11 / Subchapter V: Creates a court-approved repayment plan, typically three to five years, allowing operations to continue while resolving debts.

If closure is unavoidable, Chapter 7 offers a clean slate. If reorganization is viable, Chapter 11 provides flexibility with oversight and time to recover.

Emerging from bankruptcy is a beginning, not an end. Practical steps include:

• Open a secured business credit card and pay on time
• Maintain prompt vendor payments and clear terms
• Keep detailed accounting records to demonstrate stability
• Communicate with lenders about progress and plans
• Monitor business credit reports for accuracy

With consistent habits, many Utah owners rebuild credit and qualify for new financing within a few years.