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What are the benefits of filing for Chapter 11 bankruptcy?

On Behalf of | Aug 9, 2022 | Firm News |

When a business files for bankruptcy, it can seem like a mark of failure. The word itself carries a negative connotation, but bankruptcy is simply a legal filing, often made by businesses with a solid plan in place. Chapter 11 bankruptcy in particular is designed to allow companies to remain in business and reorganize their finances.   

Filing for bankruptcy isn’t just asking for a life preserver — it can also be a strategic business move. Let’s take a look at some of the benefits of filing for Chapter 11 bankruptcy.

Relief from creditors 

Typically after a Chapter 11 bankruptcy is filed, an automatic stay is imposed. You’ll be granted some time to plan and will not have to deal with aggressive calls from collectors. Filing for bankruptcy may also outright free you from any unsecured debt you would not have been able to pay back. 

You can also get temporary relief from things like lawsuits, wage garnishments, repossessions and bank levies. While your creditors could gain some access and influence with regard to your repayment plans, you’ll likely find yourself paying only a negotiated portion of the total debt accrued. 

The ability to renegotiate certain deals 

Bankruptcy will allow you to renegotiate existing contracts you are unable to currently honor. These could be with vendors, service providers or even labor unions. These other parties are usually incentivized to meet you in the middle. They are likely to benefit financially from your business continuing to exist for years to come. 

Procuring emergency funding

Chapter 11 prioritizes the reorganization of your company, which is likely to require extra funding. You could get access to DIP (debtor-in-possession) financing. This is a special situation where the lender is subject to the bankruptcy court’s approval but also to the court’s added protection.

A second chance with a competitive edge

At the end of the day, the greatest benefit is the preservation of your business. You’ll be able to maintain your business’ reputation and continue to pay your employees. 

Bankruptcy adds up to more than just a survival tactic. The idea is to get you back on your feet in a sustainable way. While protected by bankruptcy, you’ll only be paying a portion of debts owed with relief from a number of outside pressures.