All businesses start with a vision. But sometimes, the road to realization is bumpy. It’s not unusual for entrepreneurs to run into problems while getting their company off the ground.
If you find yourself becoming overwhelmed with business debt, it may be tempting to give up. Before you do that, you should explore your options.
How does Chapter 11 differ from other types of bankruptcy?
Chapter 11 bankruptcy is often referred to as a “reorganization bankruptcy.” It allows a business to restructure its debts while continuing operations. It’s a different approach than Chapter 7, in which your business is closed and the assets are sold off to pay your creditors. Chapter 13 bankruptcy is typically geared towards individuals and really isn’t suitable for companies.
There are several advantages to filing for Chapter 11 bankruptcy:
- You don’t need to close your doors. Instead, you keep running your business and bringing in income.
- Rather than leaving your creditors empty-handed with bad feelings towards you, Chapter 11 allows you to renegotiate payment terms. Your creditors will still get paid, and your payments will become more manageable.
- Once you file for bankruptcy, you receive an “automatic stay,” which stops collection efforts, lawsuits and foreclosure proceedings. This gives you some space to refocus on your business.
- Chapter 11 bankruptcy gives you the time and flexibility to fix problems, review and streamline your expenses and potentially see business profitability.
- You will need to present a reorganization plan to the court and work closely with creditors. However, you will likely retain control of your business operations throughout the process.
Filing for Chapter 11 can be complex and time-consuming as you work through the process. Furthermore, success isn’t necessarily guaranteed. However, it can be a powerful tool for recovery. You will want to work with someone who can evaluate your situation and determine the best option.