The purpose of any bankruptcy filing is to give you a “fresh start.” In matters of business, filing a Chapter 11 bankruptcy allows your business to continue while reorganizing your debts, business operations and finding new lenders to assist you if you wish. It is generally for corporations and partnerships, though a Chapter 13 is probably less costly and more appropriate for many non-corporate entities. Both offer debt relief.
Once you file, you retain all your business assets. In your petition, you will have to list all your assets as well as your debts. You will also have your business subject to oversight by a court-appointed trustee. This is the person who will help you with the restructuring and repayment plan that you and your attorney must submit, within 120 days after filing. With proper planning and a solid legal team behind you, your business can indeed survive and prosper.
If your business is a sole proprietorship or partnership, your personal assets may be at risk. In some cases, you may also have to file an individual bankruptcy for protection, but this should be discussed with a bankruptcy attorney.
Chapter 11 can give your business certain benefits:
Stop Creditors from Contacting You
Getting constant calls from creditors or threats of lawsuits is not only an annoyance, but it can lead to considerable emotional stress. Filing bankruptcy will initiate an automatic stay that stops all creditors from contacting you and from filing lawsuits against your business.
Establish a Repayment Plan
Once you file, the trustee assigned to your case appoints your main creditors to a committee. You and your attorney have 120 days to present a repayment plan for approval by the committee. Many times creditors are flexible in giving your business the opportunity to survive, since they do want to be paid and to continue doing business with you once any ineffective practices or poorly negotiated contracts are discontinued. The creditors are also more likely to receive a larger amount over time than they might get from an immediate liquidation of your business.
Get Rid of Dead Weight
Your business can maintain its standard operations while in bankruptcy, but you have the opportunity to get rid of nonproductive or excess employees. You may have to close stores or some operations, but you will be able to renegotiate contracts with unions or void contracts with suppliers or others that are proving to be too burdensome. Long-term leases that are too onerous can be voided as well and renegotiated on more favorable terms.
In some cases, your business may be able to avoid certain payments that it made in the months before the filing and have them returned to be included in the reorganization plan.
With the court’s approval, you or your attorney can employ financial consultants and other professionals to help you. There are also lending institutions who have special loan programs for businesses who have filed for Chapter 11.
Should your business be in trouble, Chapter 11 may be the option you should consider to making it a profitable enterprise.