A viable option for struggling businesses

A business can encounter problems for a variety of reasons. If a business needs to extend timelines to pay creditors or simply needs breathing room, Chapter 11 bankruptcy is available to help.

Operating a business can be very rewarding, but it can also be risky. Businesses can end up needing assistance under a number of circumstances. Economic changes affecting business conditions can render a primary or secondary business service uneconomic. A vendor can fail to provide critical items in a timely or effective manner, rendering the business unable to compete economically. Businesses can suffer from problems with collecting monies owed in a timely fashion. Internal issues ranging from problems with partners, directors, officers, and others can cause business reverses of a wide range. Although many times these problems can be solved internally, or externally through a workout plan, sometimes litigation is required. If the burden of the economic disruption is such that a business needs to extend timelines for payment, or needs some breathing room, Chapter 11 is a type of bankruptcy that allows a business to continue operating and gives the business protection from a wide variety of economic issues.

How Chapter 11 bankruptcy works

Chapter 11 bankruptcy is essentially an avenue that allows a business to reorganize.

The business files a petition with the U.S. Bankruptcy Court identifying its assets and debts. The business then, either through pre-planning, or after the filing comes up with a plan of reorganization which sets out how the business is going to generate income, its business model moving forward, and which debts it objects to, and which it does not. This plan is then voted on by the creditors, and if approved by the Court, forms what is essentially a type of contract which the Company uses to move forward.

Once the business files the Chapter 11 bankruptcy petition, all creditors must cease collection action against the business for unpaid debts. This is referred to as an automatic stay.

Three undisputed creditors can also file an involuntary bankruptcy in certain situations, although such involuntary proceedings are relatively rare.

Chapter 11 bankruptcy: a symbiotic relationship

Chapter 11 bankruptcy is a type of bankruptcy that is beneficial to most if not all parties involved.

This type of bankruptcy allows a debtor to renegotiate debts and continue operating. Alternately, it benefits creditors as well. Since Chapter 11 is not a liquidation type of bankruptcy, many creditors will still receive money from the business for outstanding debts owed to them via the reorganization plan.

It is important to remember that if you are a creditor, there may be important rights that can be affected by bankruptcy, and which may be very valuable to the creditor. Similarly, it is important to remember that the Chapter 11 debtor needs its creditors in order to pass a plan and move forward in a successful reorganization.

Seeking the help of a bankruptcy attorney

Chapter 11 bankruptcies are as individual as each business. It is not a one off, which someone can handle without an attorney. It is important to consult an attorney as soon as possible in order to give the business as many choices as possible in the reorganization. Further, not all bankruptcy counsel handle Chapter 11 bankruptcies so it is important to make sure that the attorney you consult is expert and has worked with Chapter 11 matters. A bankruptcy lawyer can provide greater guidance on the law and benefits of Chapter 11, the procedures involved, and the most advantageous route to take.

Keywords: Chapter 11 bankruptcy, business bankruptcy