It is no secret that the last couple of years has taken their toll on small and medium-sized companies. If your business is struggling and you are considering filing for bankruptcy, Chapter 11 may be your best option. Chapter 11, often called reorganization bankruptcy, involves a process that allows you to reorganize the structure of your business, assets, and debt while continuing to operate your business. Though Chapter 11 can be complex, many businesses find it beneficial so they can retain control and keep their doors open.
What is involved in filing for Chapter 11 bankruptcy?
Filing for Chapter 11 is not a decision to be taken lightly. It can be a very involved and detailed petition. Your petition must adhere to the format of Form B 101 of the official forms prescribed by the Judicial Conference of the United States. You must also include the following:
- Schedule of assets and liabilities
- Schedule of current income and expenses
- Listing of contracts and leases
- Statement of financial affairs
Once the petition is filed, as a business owner, you are the “debtor in possession.” This designation means that you are in possession and control of your business and remain so throughout the reorganization process and usually throughout your case.
You will then submit your plan for reorganization within 120 days of your petition. This plan should outline the steps that will be taken for handling creditor claims and what you plan to do to generate the income needed to repay them. After meeting with creditors, the court can then reject or approve your plan. Once your plan is completed, the court will discharge your debt.
What are the advantages of filing Chapter 11 bankruptcy for your business?
One of the most important advantages of filing Chapter 11 is that you can continue to operate your business. Unlike filing Chapter 7, where your assets are sold to pay your debts, and the business closes down, with Chapter 11, you will continue to operate in the capacity as outlined in your plan.
Filing Chapter 11 bankruptcy also puts a stay on all debt collection activities, including repossessions, garnishments, levies, and liens. Chapter 11 will also stop lawsuits from your creditors as well as foreclosure proceedings.
Businesses in Chapter 11 can often seek and procure debtor-in-possession financing. If authorized by the court, lenders can receive preferential terms, including giving the debt priority over other creditors. You can also sell off property without liens or other interests in order to generate funds to keep the business operational.