Chapter 11 bankruptcy is often referred to as a “reorganization” bankruptcy, and if that name seems to take a rather light tone with a serious financial situation, it’s because Chapter 11 doesn’t necessarily spell financial ruin for businesses that handle the situation tactfully.
Though Chapter 11 is a serious proceeding that must be addressed delicately, many businesses can eventually regain profitability after filing for this type of bankruptcy.
What Is Chapter 11 Bankruptcy?
Chapter 11 is a form of bankruptcy that involves the reshuffling of a business’ debts, assets, and affairs; this gives the debtor (almost always a business of some sort) time to restructure their debts in a more manageable way, which allows them a proverbial fresh start. However, Chapter 11 still requires that the debtor meet certain obligations as stipulated in the reorganization plan.
Chapter 11 is the most expensive and most complicated type of bankruptcy proceeding, so it shouldn’t be entered into lightly, but it can prove fruitful as a last-ditch option.
How Will Chapter 11 Bankruptcy Affect My Business?
During Chapter 11 proceedings, businesses can usually run as normal for the most part. This is one of the most attractive aspects of Chapter 11—unless there has been some instance of fraud or gross incompetence, debtors are generally allowed to maintain possession of their businesses.
Of course, there are some changes that must inevitably take place within a business once Chapter 11 has been filed. The business will no longer be allowed to make certain decisions at their sole discretion without consulting the courts; for example, if your corporation files for Chapter 11 bankruptcy and you want to enter into a new commercial rental agreement, you would not be able to do so without permission from the court.
Likewise, filing for Chapter 11 bankruptcy necessarily requires a reorganization plan. The debtor has the opportunity to propose their own plan first, which will likely require downsizing or liquidation in some measure in order to repay debts.
The good news is that if the business’ proposed reorganization plan is accepted, then the process moves forward without any other surprise damage done to the business.
How to File for Chapter 11 Bankruptcy
Like other forms of bankruptcy, Chapter 11 begins by filing a petition with the local bankruptcy court. If the petition is voluntary, it means that it is filed by the debtor; if the petition is involuntary, it means that it is filed by the creditors.
Along with the petition, debtors must pay a case filing fee and an administrative fee; a disclosure statement and a plan of reorganization must also be filed with the court. When the court is in possession of all of the necessary documentation, they will hold a hearing to determine whether or not they will confirm the reorganization plan.
Finding A Chapter 11 Bankruptcy Attorney
For those unfamiliar with the intricacies of federal law, consulting a Chapter 11 bankruptcy attorney is vital. This is particularly true due to the fact that businesses are given the opportunity to submit their own plan for reorganization when they file for Chapter 11 bankruptcy; it is obviously preferable to have this plan confirmed rather than to have one created by the courts.
A Chapter 11 bankruptcy attorney will understand what exactly a court is looking for in a plan that is fair and satisfactory, so they will be able to help you formulate one that has the best odds of being confirmed without stripping away too much of your business.
An attorney is additionally important when filing for Chapter 11 because the process is infamously complex and often costly. Not only can a skilled attorney help to expedite and simplify the proceedings, but they can also ensure that you do not spend additional time in court, wrapping funds that you simply don’t have into the process. In this way, hiring an attorney is actually a cost-effective decision for businesses filing for Chapter 11 bankruptcy.
It’s a good idea to seek out an experienced attorney who has worked a number of Chapter 11 bankruptcy cases before; this ensures that they will be able to handle the situation with dexterity and aplomb, navigating around any roadblocks in the process as quickly as possible.
No business owner dreams of filing for bankruptcy, but Chapter 11 does not have to spell the end of your professional success. Many corporations have filed for Chapter 11 and gone on to recover after reorganizing; understanding the process and investing in help from knowledgeable partners will go a long way toward making Chapter 11 just a speed bump in the grand scheme of your business’ path to long-term success.