Chapter 11 Business Bankruptcy
According to the U.S. Internal Revenue Service, a case filed under Chapter 11 of the bankruptcy code is frequently referred to as a “reorganization.” It is used primarily by incorporated businesses. Individuals whose debt exceeds the maximum limit for Chapter 13 also file Chapter 11. The debtor uses the time from their bankruptcy filing to the confirmation of their debt repayment plan to reorganize their finances. Failure to successfully reorganize and get a debt repayment plan approved may result in a Chapter 11 case being converted to a liquidating Chapter 7.
Chapter 11 of the US Bankruptcy Code is especially designed for business firms that become insolvent, but would not want to cease operations.
Insolvency puts any business firm’s existence at risk, but business owners should know that while they are legally bound to pay their creditors, the Chapter 11 bankruptcy law can save and protect them from being harassed by creditors and loan collectors, as well as allow them to design a scheme that will make settlement of debts more affordable.
Unfortunately, many business firms shy away from chapter 11 because it is complex, time-consuming, risky and very expensive; however, it is also the only bankruptcy chapter that will allow firms, with loan amounts exceeding the limit set in Chapter 13, to restructure their debt payment and continue business operation at the same time.
Chapter 11 bankruptcy, also known as business bankruptcy, may be filed by limited liability companies, corporations, partnerships and sole proprietorships. Both small businesses and giant corporations can be eligible to seek protection from it.
This reorganization type of bankruptcy requires firms to design a payment plan, which the court will then approve. There are even instances when the court would reduce the firm’s liabilities, such as through the discharge of unsecured debts, to make payment easier and profitability, achieved faster.
Chapter 11 can also be considered a liquidation bankruptcy since the debtor or company can choose to sell some of its assets and properties to be able to pay its creditors. A debtor, however, who has already filed chapter 11 in the last 6 months or 180 days, wherein this application resulted in a dismissal or the debtor either failed to comply with the court’s mandates or failed to appear in court, is prohibited from filing another case.
The Bradford Law Offices, PLLC, know that businesses may carry significant debt for a number of different reasons. For newly started businesses, it is not uncommon for debt levels to be considerable for several years, due to high start-up costs and sometimes unreliable revenue streams. Even existing businesses may be required to carry large amounts of debt during difficult economic stretches or as an operating cost. However, if the debts a business owes become unmanageable, it may be necessary to pursue Chapter 11 bankruptcy protection to resolve the problem.