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Is Chapter 11 Bankruptcy Right for My Business?

If your business has taken on too much debt and is operating at a loss, you may  want to consider Chapter 11 bankruptcy. This kind of bankruptcy is available to individuals, but Chapter 7 and Chapter 13 are better options for personal bankruptcy.

Is Chapter 11 Bankruptcy Right for My Business?Chapter 11 bankruptcy is typically used by a business to restructure its debt and return the company to profitability. There is no debt limit for this type of bankruptcy so it can be used by large and small companies.

The bankruptcy process for Chapter 11 starts when a business files a petition with the U.S. Bankruptcy Court for an “automatic stay.” This means that a company’s creditors must halt all communication, collection efforts, lawsuits, liens and foreclosure proceedings.

The money-losing business then needs to file a reorganization plan within a specific time frame ranging from 120 to 170 days. Extensions to these time periods can be requested. This plan must include a path to make the company profitable after Chapter 11 bankruptcy proceedings are complete.

Restructuring can include changes to a company’s long-term contracts, leases or loans. For example, the business can propose increasing the time required to pay a loan back, decreasing the interest rate or making other changes to loan terms.

The restructuring plan can also include selling some assets. It can even include pursuing new income or revenue sources.

If the company can’t come up with a plan for achieving profitability during the time limit, creditors or interested parties can file such a plan for the company.

A creditors’ committee can also be formed by the unsecured creditors if it is a large, contested or complex case. This committee then works with attorneys and financial advisors on the Chapter 11 bankruptcy case.

Creditors can argue for or against aspects of the restructuring plan, but the bankruptcy court has the final say on reviewing and approving the plan.

Once a plan is approved, the business is managed by the owner who implements the plan. This includes paying back debts and filing monthly reports with the court on its progress. If the owner is found to be unable to manage its plan or be truthful, a trustee may be put in place.

The cost of Chapter 11 bankruptcy starts in the thousands and only increases from there. Since the goal is to allow a business to become profitable, the cost is worth it to these companies. Given the complexity and cost of a Chapter 11 bankruptcy filing, you should hire a bankruptcy attorney before heading down this path.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/chapter-11-bankruptcy-right-business/.

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