Companies facing financial trouble can rely on Chapter 11 bankruptcy. Business bankruptcy chapter 11 allows the company to restructure its debts and creates a repayment plan.

Basics And Eligibility For Chapter 11

Larger companies turn to chapter 11 corporate bankruptcy. However, small businesses and individuals in some cases are eligible. Chapter 12 bankruptcy is another type of less-known bankruptcy case. This is often used by family farmers and fishermen.

You might also be interested in Chapter 7 bankruptcy or Chapter 13 bankruptcy if you don’t own a business. These are the most popular types of bankruptcy filings, for both individuals and companies depending on their specific circumstances.

What Is A Chapter 11 Bankruptcy and How Does It Work?

Business bankruptcy chapter 11 is a method of reorganization that helps businesses with large debt loads. The U.S. Chapter 11 filings are open to all companies. Bankruptcy Code works with creditors to restructure and consolidate their debts.

After bankruptcy, the company files a proposal plan. It may include:

  • Reduce costs
  • Looking for new sources of income?
  • Temporarily deferring payment to creditors
  • Ideas to increase profitability

Chapter 11 Bankruptcy: Benefits

There are key benefits to Chapter 11 bankruptcy restructuring. It:

  • You can keep your business in operation while you avoid liquidation.
  • Allows for more time to prepare and file a plan
  • It allows you to reorganize things that aren’t working.
  • This allows you to keep control of your business

Chapter 11 is, however, more costly and time-consuming than other forms.

Eligibility For Chapter 11: Owners vs Creditors

Chapter 11 bankruptcy can be filed by either the debtor or the creditors. It is known as an “involuntary bankruptcy petition” if the creditors choose to file.

The bankruptcy petition is filed by the business, regardless of who files it.

Filing A Chapter 11 Petition

The petition process can be initiated by an attorney or yourself. The debtor will then begin to create its reorganization plan.

If it’s:

  • Structured and developed “in good faith.” It was designed and constructed “in good faith.” The court will examine all documentation in the case to determine whether you were acting in good faith.
  • Respect all laws and court orders.

Once the court approves the plan, it will be confirmed by the court. All debts that were not addressed in the plan but which existed prior to the confirmation date may be dismissed. Following the reorganization, the company will be obligated to pay any remaining creditors.

Some debt can be negotiated or dismissed to make it less expensive. This allows the repayment plans to be lower than the original debt.

The debtor will have to:

  • Throughout the entire process, examine each creditor’s claims
  • When it makes sense, make objections
  • To keep the court informed about progress, provide monthly operating reports

After the petition is filed, the business can continue with its normal work. They can continue their work without interruption. However, the bankruptcy court will oversee the creation of a repayment plan by the debtor.

For filing Chapter 11 bankruptcy, you must submit the following information:

The following forms must be filed by small businesses with the court

  • The most recent balance sheet
  • Statement of operations
  • Statement on cash flow
  • Most recent federal income tax return

Small business bankruptcy chapter 11 filings are more closely monitored by the bankruptcy court than those filed by larger companies. Businesses are required to report their profitability, projected cash receipts, and disbursements to the courts. They also appoint U.S. trustees for these cases.

Chapter 11 Reorganization Plan 101

Chapter 11 bankruptcy protection allows you to be profitable again. This is in contrast to Chapter 7, which only discharges debts.

The company must make the following first steps to achieve this goal:

  • Renegotiate leases
  • Renegotiate contracts
  • Repay or have debts forgiven

Creditors are motivated to work with business owners, accept lower debt repayments, and make compromises. They won’t likely get better terms or more money from a Chapter 7 bankruptcy proceeding.

A restructuring plan will place creditors in different categories regarding how they are treated. These are the creditors that have priority to repay:

  • Federal and state tax agencies
  • Wages owed to employees
  • Stockholders

Each secured creditor can be placed in its own category, while unsecured claims are combined in one class. This plan could change the terms of money creditors receive when they repay their debts. Creditors must vote on the plan and have it approved by the court.

Small Businesses: Chapter 11

Chapter 11 bankruptcy reorganization tends to be associated with large corporations, but it’s available to qualify small businesses.

According to the Small Business Administration, a “small business” means one that employs fewer than 500 people. Most Chapter 11 filings are made by small businesses. They don’t have to stay in Chapter 11.

Many business bankruptcy chapter 11 filings for small businesses are dismissed and converted into Chapter 7. The court determines that the business is unlikely to be profitable. If the business entity is capable of surviving and making a profit on its own, partnerships, which are limited in bankruptcy options, can file Chapter 11.

The U.S. Bankruptcy Code defines a “small business debtor” as an individual who is engaged in business activities and has total debts less than $2,725,625 at the time of filing.

Contact Our Office Today

Bruner Wright is the top-rated experienced bankruptcy attorney in Pensacola, South Georgia, and the Florida Panhandle. Our team has more than 40 years of experience helping people file Chapter 7 bankruptcy, Chapter 11 bankruptcy, Chapter 12 bankruptcy, and Chapter 13 bankruptcy. Our practice has been very successful in helping people discharge their debts. We offer a personal service that is comprehensive and thorough in all aspects of our industry. We are responsive to the needs of our clients.

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Contact us today to schedule a consultation with a bankruptcy attorney. Find out if bankruptcy is the best option. A member of our team will review your case to help you make the right choice. We are focused on consumer bankruptcy. We want you to achieve financial stability.