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Potential Benefits of Chapter 11 Bankruptcy for Businesses

Chapter 11.jpgChapter 11 bankruptcy is a type of reorganization bankruptcy that is available to both individuals and business entities, although it is predominantly utilized by businesses. It is important to understand some of the ways that businesses can benefit for filing for Chapter 11 bankruptcy protections. For more information or for answers to specific questions regarding your case, call our office today to speak with a San Jose bankruptcy attorney.

The Protections of the Automatic Stay

The most immediate benefit enjoyed by businesses that file for Chapter 11 bankruptcy are provided by the automatic stay, an injunction that becomes active the moment that a party files for bankruptcy. The automatic stay prevents creditors from pursuing any type of collection activity, including sending letters, making phone calls, and, importantly, repossessing or foreclosing on property.

Chapter 11 Provides for Continuity of Operation

Unlike Chapter 7, which involves a business ceasing operations and the liquidation of assets, Chapter 11 allows a business to continue to operate. The debtor generally retains control of the day-to-day operation of the company as a "debtor-in-possession," which means that the business does not have to be concerned about the loss of goodwill, name recognition, or an existing customer base that could occur if the business was forced to stop operating.

An Opportunity to Adjust Interest Rates and Cancel Certain Contracts

Another significant benefit afforded to businesses that file for Chapter 11 bankruptcy is the opportunity to "cramdown" certain interest rates on loans. In addition, debtors may also cancel certain long-term contracts with terms that are to be performed in the future (executory contract) if the debtor deems them to be unprofitable.

A Debtor Can Catch Up on Accelerated Obligations

In some cases, where a debtor defaults on a financial obligation such as a loan, lease, or mortgage, the creditor accelerates the obligation and demands the entire amount of the debt be paid at once. When a business is in Chapter 11, it can often cancel any acceleration of a debt, cure the default, and continue paying on the debt as it did prior to the default.

Preservation as a "Going Concern"

Chapter 11 allows a business to be treated as a going concern, which means that it is expected function without the threat of liquidation in the next 12 months. This designation is critical for a business to be able to incur debts and defer payment into the future.

Contact a San Jose Business Bankruptcy Law Firm Today to Retain Legal Counsel

Businesses that are considering bankruptcy should be certain to fully explore their options with the assistance of an experienced attorney. The skilled San Jose bankruptcy lawyers of Diemer, Whitman & Cardosi, LLP are experienced attorneys who understand the unique legal needs of businesses and work tirelessly to provide solution-oriented representation and legal counsel. To schedule a consultation with one of our lawyers, call our office today at 408-971-6270.




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