Every business goes through good times and bad. And sometimes the bad lasts a little longer than expected.
But you know things will turn around, and you just need some extra time to catch up. However, you understand that your investors and suppliers need payment, too. So, what are your options? Do you need to sell off your business assets to satisfy your creditors?
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy is a legal lifeline that protects businesses while they reorganize their debts and attempt to become profitable again.
Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 11 allows you to restructure your business operations. The goal is to create a plan to enable your business to continue operating while paying creditors over time.
By filing for Chapter 11 bankruptcy, you trigger an automatic stay, halting all collection attempts, lawsuits and foreclosure proceedings. This gives you the breathing room to develop a reorganization plan without the pressure from creditors.
In addition, you will remain in control of business operations while undergoing the bankruptcy court-supervised reorganization process.
Your creditors will still have a role in Chapter 11 proceedings. They have the right to review and vote on the proposed reorganization plan and can object if they believe it’s not feasible. The plan needs to be approved by the majority of the creditors and confirmed by the bankruptcy court. Once confirmed, you can begin implementing your reorganization plan. This includes making payments to creditors as outlined in the plan and adhering to any operational changes required.
There are several advantages to a Chapter 11 bankruptcy:
- Your business can continue to operate while addressing financial issues. This can help preserve jobs and maintain customer relationships.
- You can renegotiate terms with creditors, potentially lowering interest rates or extending repayment periods. This can provide relief and improve your cash flow.
- There is no need to liquidate business assets that are essential for your operations.
However, Chapter 11 is a complex process, and there is no guarantee that your reorganization plan will succeed. Still, even though it can be challenging, it offers you the opportunity to preserve your business and ultimately return it to profitability.