Whether your business is small or big, if you are not able to pay the bills, then you will decide to shut down your business, which will make everyone lose. For such conditions, Chapter 11 bankruptcy is the option that can help you to hit a pause on your debts, instead of closing your business. During the procedure, the business will continue, but only the debts will be paused. The main goal of this procedure is to let the business come back to its form by paying the debts, instead of closing the business.

If you are struggling with a situation where you cannot pay the bills for your business. Your expenses exceed your income, but you want to continue your business, then Chapter 11 bankruptcy is the ideal choice.

Who is Chapter 11 Business Bankruptcy for?

Chapter 11 is designed with businesses in mind, specifically businesses whose expenses far exceed their income but want to continue operating (rather than sell everything) and pay creditors over time. This chapter can also be used by individuals under certain circumstances. This type of bankruptcy is usually referred to as a “reorganization” bankruptcy.

• For businesses, including partnerships, corporations, and LLCs, this type of legal process is most common and useful to reorganize their debts and finances.
• In certain conditions, this type of business bankruptcy is used by individuals.

How does it work?

This type of bankruptcy can be started by the individual on behalf of the business (voluntary petition). However, this type of bankruptcy is entirely different from the commonly used chapter 7 and 13 in that creditors that meet certain requirements may also begin the proceedings (involuntary petition). Ultimately, a schedule of payments will be filed that outlines a way to pay off the business’ debts, usually in 5 years but it can be extended to 10 years under some circumstances. In this way a business’ debts may be reorganized to make it possible for it to continue operating. Something that many clients find very helpful is that while this proceeding is taking place, and while the payment plan is being followed, creditors cannot take action to collect or repossess. This means no more  calls from creditors, final notice letters, new liens, or wage garnishments.

What is the purpose of Chapter 11 Business Bankruptcy?

The main purpose of Chapter 11 business bankruptcy is to make the business stress-free by reorganising its debts and operations. With this legal process, the business can continue to exist and can become profitable, instead of shutting down and eliminating its assets. Below is a brief about the purpose of Chapter 11 Business bankruptcy:

Reorganization and Financial Restructuring:

The main aim of Chapter 11 is to reorganize and restructure the financial condition of the business. This type of bankruptcy can offer the legal framework for the business and can help the business to restructure its debts to achieve financial stability for a long period. Chapter 11 allows the renegotiation of terms with the creditors to reduce the interest rates.

Preservation of the Business:

Chapter 11 allows the business to preserve the jobs, relationships with the clients or customers, and networks, instead of shutting down the business. With this bankruptcy, the business continues with its operations.

Protection from Creditors:

After the filing, the automatic stay means that protection from creditors comes into effect. This action stops the collection efforts of the creditors. Upon the filing, the automatic stays allow the business to develop its reorganization plan without any stress.

Orderly Debt Repayment:

Chapter 11 offers the procedure that allows the business to deal with its debts. A formal and organized plan of reorganization outlines the different types of creditors who will be paid over time.

Maximizing Value for Creditors:

When the business continues to operate and reorganizes its finances, it can generate more value for the creditors over time. Chapter 11 maximizes the return of the debts.

“Fresh Start” for the Debtor:

Chapter 11 offers a fresh start for the debtor or the business owners and allows them to operate a more financially stable business. This is a legal and powerful tool that is designed to offer a business another chance to stabilize its business.

What does Chapter 11 bankruptcy include?

Chapter 11 bankruptcy can be started by the person on behalf of the business. This type of bankruptcy is completely different from the other common chapters 7 and 13.

1. In this type of bankruptcy, a well-organized payment plan is developed to help the business pay its debts over a period.
2. A period such as 5 years, and this time can be extended to more time to 10 years under certain circumstances.
3. This legal process can help the business operate while handling its debts without going bankrupt.
4. The main advantage of this procedure is that while this process is occurring, the creditors cannot take any action against the business to collect their debts.
5. During this process, no phone calls from the creditors and no notices.

What information is required?

An individual or corporation should supply the law office with documents showing the items below (Note that additional information will be required and requested after a consult and retention):

• A list of all creditors and the amount owed to each one.
• The source, amount, and frequency of the business’ income.
• A list of all of the business’ property.
• A detailed list of the business’ monthly overhead and expenses.

It is helpful for the business or individual’s accountant to be involved in the preparation of financial information, balance sheets and profit and loss.

What is the process of Chapter 11 Bankruptcy?

The process of Chapter 11 bankruptcy may include:

• Filing the Petition
• Debtor in Possession (DIP)
• Automatic Stay
• Schedules and Statements
• Creditors’ Committee
• Disclosure Statement and Plan of Reorganization
• Creditor Vote
• Court Confirmation
• Post-Confirmation Administration

Chapter 11 vs. Chapter 7 | Which is better?

It is hard to decide which one is better between chapters 11 and 7. The choice of the best option depends on the complexity of the case and the situation of the debtor.

Chapter 11, also known as reorganization bankruptcy, allows the business to restructure its finances and continue operating, and repay the debts to the creditors over time. On the other hand, chapter 7, also known as liquidation, is a process that involves the selling off of the assets of the debtor to pay the creditors. This procedure can terminate the operation of the business.

What are the advantages of Chapter 11?

Chapter 11 allows the business to recover its finances and stay open with the continued operation. This procedure offers the automatic stay, which means it offers immediate protection and prevention of phone calls and notices from creditors for collection. The creditors cannot take any action to collect the debts. With Chapter 11, the business or individual can get the chance for a fresh start. Chapter 11 can offer a way to a more stable and profitable future for the business. This type of bankruptcy can offer the opportunity to reduce the monthly debt loads.

Disadvantages of Chapter 11:

Chapter 11 bankruptcy can offer various advantages, but it can also carry disadvantages. Here are some disadvantages of Chapter 11:

• This type of bankruptcy is costly and complex that involving significant fees.
• The process for Chapter 11 is time-consuming, and sometimes it takes several years.
• Filing for bankruptcy can hurt the reputation of the company and can disturb the relationships of the company with the investors, clients, and suppliers.
• This type of bankruptcy can involve limited access to credit.

Final Talk:

Chapter 11 bankruptcy is a legal process that can be complex and lengthy. It is essential to take professional legal advice from an experienced attorney or financial advisor is highly recommended. Before considering Chapter 11 bankruptcy, it is crucial to get legal advice from a bankruptcy attorney to achieve the outcomes of the cases in your favour.

Frequently Asked Questions for Chapter 11 Bankruptcy:

Question 1. Whom should I hire for a Chapter 11 bankruptcy filing?

Answer. For a Chapter 11 bankruptcy filing, you can hire a bankruptcy attorney or financial advisor who has the experience to handle the legal factors of the filing. An experienced bankruptcy attorney can help you continue your business, whereas a financial advisor can help you by offering guidance according to your financial situation.

Question 2. Is Chapter 11 bankruptcy an easy process?

Answer. Chapter 11 bankruptcy is a complex and lengthy procedure. This procedure can be expensive due to the requirement for proper navigation. This procedure can offer restructuring of the debts and finances of the business, but it holds complex and significant challenges.

Question 3. How long does it take for Chapter 11 bankruptcy?

Answer. The duration of a Chapter 11 bankruptcy depends on the complexity of the case. It may take from a few months to years. Businesses have been given the time of four months to submit the plan of reorganization after filing Chapter 11 bankruptcy. This time given can extend up to 18 months. There is no fixed time limit for Chapter 11 plans.

Question 4. Do creditors get paid in Chapter 11?

Answer. Yes, creditors are paid in Chapter 11 bankruptcy, but not surely. Creditors may or may not be paid the full payment. This is a reorganization bankruptcy that allows the debtors to reorganize their finances and repay the creditors over time.