While unmanageable debt has become an increasingly common problem for individuals, many people are able to find relief by filing for bankruptcy under either Chapter 7 or Chapter 13. When a business finds itself in a similar situation, it too has options. Small business owners who find themselves facing overwhelming debt and struggling to meet their payroll, taxes, ordinary expenses and other financial burdens should consider reorganizing their debts under a Chapter 11bankruptcy. Individuals can also file Chapter 11 if they make too much money or have too many valuable assets to file Chapter 7 bankruptcy but have too much debt to file Chapter 13. A Morris County bankruptcy attorney can help individuals decide if Chapter 11 is right for them.
Chapter 11 bankruptcy is available to every business, whether organized as a corporation, partnership or sole proprietorship. The upside of a Chapter 11 bankruptcy is that it allows the business to keep its operations running and to recover its financial footing over time by restructuring its debt. Instead of liquidating all of your nonexempt assets and distributing the proceeds among the creditors, you can enter into a repayment arrangement with your creditors. You retain control of the business operations as the “debtor in possession”, although some decisions are subject to the oversight and jurisdiction of the bankruptcy court. The debtor must submit a plan that classifies each creditor’s claim, specifies how each class of claims will be paid and provides the means for implementing the plan.
Some of the benefits of a Chapter 11 filing include the ability to acquire financing and loans on more favorable terms by giving top priority on earnings to new lenders. It is also possible for the debtor in possession to reject and cancel contracts to restructure the business in a more profitable manner. Sometimes business woes can be traced to a single bad deal or detrimental contract that needs reconsideration before the business can return to profitability.
Chapter 11 also offers debtors extra protection from litigation against the business through the imposition of an automatic stay, which stays all collection activity, including collections lawsuits.
Typically, Chapter 11 reorganizations are more complicated than other forms of bankruptcy. Chapter 11 requires disclosure statements where a business debtor must demonstrate feasibility of the repayment plan, affirming to both creditors and the court that the business can really perform the payments and obligations outlined in the proposed plan. In addition, the law requires any business larger than a sole proprietorship seeking Chapter 11 debt relief to have legal representation.
Contacting an experienced Morris County bankruptcy lawyer is the best way to determine if your business should seek reorganization under Chapter 11.