When the Jobs Dry Up and the Bills Keep Coming

Running a contracting or trades business in South Florida takes real grit. You juggle materials costs, subcontractors, licensing fees, slow-paying clients, and weather delays. When cash flow falls apart, personal and business debt can pile up fast.

If you are a plumber, electrician, roofer, general contractor, painter, landscaper, or any other tradesperson, you are not alone in facing financial strain. Bankruptcy is a legal tool that the Bankruptcy Code makes available to working people and small business owners alike. This post walks through how it works for someone in your shoes.

You and Your Business May Be the Same Legal Entity

Many tradespeople operate as sole proprietors or single-member LLCs. In those situations, there is often no clean separation between personal and business debt. A judgment against your business can become a judgment against you personally. That means a bankruptcy filing often addresses both kinds of debt at the same time.

If you have a formal partnership, the picture gets more complicated. A post on business partners and personal bankruptcy covers some of those dynamics in more detail.

The Automatic Stay: Breathing Room from the Moment You File

When a bankruptcy case is filed, a federal protection called the automatic stay goes into effect immediately under 11 U.S.C. § 362. Filing triggers the automatic stay, which generally pauses most collection calls, lawsuits, wage garnishments, bank levies, and foreclosure actions while the case is open.

For a contractor, that can mean relief from a supplier suing you over unpaid materials, a lender pursuing your vehicle, or a creditor garnishing your bank account. There are exceptions and limits to the stay, and repeat filings within a short period can reduce or eliminate it. Our post on the automatic stay explained goes deeper on how it works.

Chapter 7: A Fresh Start for Qualifying Filers

Chapter 7 is a liquidation bankruptcy. A trustee reviews your assets and discharges most unsecured debts, often within a few months. Most filers keep all or nearly all of their property because Florida's exemption laws protect key assets.

To qualify, you must pass a means test. The test compares your household income to the Florida median income for a household of your size. If your income is at or below the median, you generally qualify. If it is above, a more detailed calculation applies. Income from self-employment and contracting work counts in this calculation.

What Florida Exemptions Protect

Florida filers use Florida exemptions, not federal ones. For contractors and tradespeople, the most relevant protections include:

  • Homestead exemption: Up to half an acre inside a municipality, or up to 160 acres outside one. This can protect significant home equity, though a federal cap may apply if you have owned the home for less than about 1,215 days before filing.
  • Vehicle equity: Up to $1,000 of equity in one motor vehicle.
  • Personal property: Up to $1,000 in personal property. If you do not claim the homestead exemption, a larger wildcard exemption may be available.
  • Retirement accounts: 401(k)s, IRAs, and similar qualified retirement accounts receive strong protection under Florida law.
  • Head-of-family wages: If you provide more than half the support for a dependent, a portion of your wages or earnings may be protected from garnishment.

One important note: Florida exemptions do not specifically carve out tools of the trade the way some other states do. Contractors need to plan carefully around equipment, vehicles, and inventory, because items not covered by an exemption could be subject to liquidation by the trustee.

Chapter 13: Keep Your Assets, Catch Up Over Time

Chapter 13 is a repayment plan that lasts three to five years. You propose a plan to pay back some or all of what you owe, based on your disposable income and the value of non-exempt assets. At the end of the plan, remaining eligible debts are discharged.

Chapter 13 can be a good fit for contractors who:

  • Have equity in property they want to keep
  • Are behind on a mortgage and want time to catch up
  • Earn too much to qualify for Chapter 7
  • Have tax debts or other debts that benefit from a structured payoff

Self-employment income can make Chapter 13 more complex, since your income may vary month to month. The plan has to be funded consistently. A comparison of timelines is available in our post on Chapter 7 vs. Chapter 13 timeline comparison.

Subchapter V: A Streamlined Option for Small Business Owners

If your contracting business has debt below a threshold set by the Bankruptcy Code, you may qualify for Subchapter V of Chapter 11. This is a relatively newer, streamlined version of Chapter 11 reorganization designed for small businesses.

Subchapter V allows a business owner to propose a repayment plan, keep the business running, and potentially retain more control than in a traditional Chapter 11. There is no creditors' committee in most cases, and the process moves faster than a standard Chapter 11. A trustee is appointed to help facilitate a confirmed plan, not to liquidate the business.

Subchapter V can be a strong fit for contractors who want to keep their business alive, have ongoing contracts, and need to restructure what they owe to suppliers, lenders, or the IRS.

Debts That Generally Survive Bankruptcy

Not every debt is wiped out. Certain debts generally survive discharge under the Bankruptcy Code, including:

  • Most student loans
  • Recent income taxes and certain other tax obligations
  • Domestic support obligations like child support and alimony
  • Court-ordered fines and restitution
  • Debts from fraud or willful misconduct

Contractors who owe payroll taxes or trust fund taxes should discuss those specifically with an attorney, as those can be treated differently.

What the Process Looks Like

Before filing, you must complete a credit counseling course from an approved agency. After filing, you will have a 341 meeting of creditors, typically scheduled about a month after the case is filed. In the Southern District of Florida, which covers Miami, Fort Lauderdale, and West Palm Beach, these meetings are routinely held by video or phone. Before you receive a discharge, you must also complete a debtor education course.

Some filers ask about filing fees and whether any cost relief is available. Attorney fees, court costs and filing fees are explained in writing before any case begins. Information on fee waivers and installment options is available in our post on bankruptcy filing fees and waivers.

A Note on Outcomes

Every contractor's financial situation is different. The size of the debt, the type of business structure, the value of assets, and the source of the debt all affect which path makes sense. Past results do not predict future outcomes. General information like what you find in this post is a starting point, not a substitute for reviewing your specific situation with a bankruptcy attorney.

The Bankruptcy Code gives working people and small business owners real options. Understanding those options is the first step toward making a clear-headed decision.

Wondering if a fresh start fits your situation?

Attorney fees, court costs and filing fees are explained in writing before any case begins. Take the free 2-minute case review or call Recalde Law Firm at (305) 792-9100.