Brought to you by The Benenati Law Firm:
Chapter 11 Bankruptcy is a legal procedure by which a business can declare bankruptcy but keep operating the business under supervision of the court. Commonly, this process is known as reorganization, as the bankruptcy procedure reorganizes the business to be able to pay the business’ creditors and emerge as more efficient.
If you feel your business needs a jump start, you must contact a bankruptcy law firm to learn more about Chapter 11 and how to use it to achieve your goals. First of all, you should know that all types of bankruptcies are run via a part of the U.S. court system known as bankruptcy court.
Business Debt in Chapter 11
If you file Chapter 11 bankruptcy as a business, the creditor becomes creditor-in-possession, which means that the debtor is in possession of business assets. The bankruptcy court may exempt you from paying part or all of your business debts.
Chapter 11 bankruptcy is generally sought and granted in cases where the business value is higher than the total assets value. In other words, the business has notable goodwill, which, would be lost if the business was liquidated or sold.
The debtor or the business owner becomes the debtor-in-possession in Chapter 11 bankruptcy. The debtor-in-possession has fiduciary responsibilities to bring the business back out of bankruptcy. The business owner acts as bankruptcy trustee with responsibility for objecting to and examining claims, accounting for property, and filing required informational reports.
How Chapter 11 Operates for Small Businesses
For small businesses, Chapter 11 is different and certain rules apply to a business bankruptcy. There are two qualifications for small businesses:
- The debtor must be an ongoing business with a maximum debt based on current guidelines.
- There is no committee of creditors that agrees on the way business assets are to be given to the creditors.
In this case, the debtor-in-possession must offer initial financial statements, such as the latest balance sheet, cash-flow statement, statement of operations, tax return, and other statements.
Small business cases need more oversight by the trustees, including frequent financial statements and reports. The advantage of Chapter 11 bankruptcy for small businesses is that it can be completed more quickly than the traditional Chapter 11 bankruptcy.
Chapter 11 Bankruptcy – The Process
The process starts with the business meeting a bankruptcy attorney who may help you determine which type of bankruptcy would be the most suitable for you. You’ll be required to file bankruptcy in the same state where you’re conducting business because it’s state-driven process.
The formal beginning of the process is a petition, which contains an intent to file the reorganization plan. Then, your business will be provided with a trustee who will be guiding your business through the process of reorganization.
Chapter 11 is a lifeline for many businesses. Several businesses have re-emerged and have been able to operate normally after a Chapter 11 bankruptcy. However, one should contact a bankruptcy law firm before taking any decision or steps.