If you are contemplating filing for Chapter 11 bankruptcy for your business, you already know that your business status is on shaky ground. The uncertain economy and the ever-changing threats of tariffs have businesses on edge.
If the economy doesn’t level off soon, many formerly booming businesses may have to consider filing for Chapter 11 bankruptcies that could leave them as debtors in possession of those companies.
Defining those terms
Being a debtor in possession means that, at least for the present, you have retained possession of your company even though you have already initiated Chapter 11 bankruptcy proceedings. Debtors must also file plans of reorganization and detailed disclosure statements, which creditors must either reject or accept via votes.
While you may feel surrounded by the stigma of filing for business bankruptcy, this is actually a positive thing, as it buys you time to reorganize your liabilities and debts while continuing to generate earnings through your company.
The role of the court in bankruptcies
Courts understand that debtors in possession of their business need flexibility at times to keep their doors open. But at this point, they have demonstrated that having unfettered access to their company’s assets might not be prudent.
Thus, courts appoint trustees to approve any major decisions made by the debtors in possession when it comes to applying for business loans, selling off company assets or shuttering their companies.
When should you file for Chapter 11 bankruptcy?
Debtors should file their petitions for Chapter 11 business bankruptcies whenever their companies are otherwise threatened with closure due to outstanding debts. Owners will gain some sense of clarity about which business practices are no longer viable and what will work instead of liquidation.
Learning more about the options you have can help you hold onto your small business in these trying times.