Can I File For Chapter 11 Bankruptcy?
Chapter 11 is a special type of bankruptcy intended primarily for the reorganization of debt incurred by businesses. While it is most often associated with corporations, it is also available to small businesses. In rare instances, consumers can file for Chapter 11. Chapter 11 bankruptcy allows a company that is heavily burdened by debt to propose a plan for profitability post-bankruptcy. This can include trimming costs and seeking new sources of revenue. Chapter 11 will allow a company to stay in business, while Chapter 7 usually involves a complete liquidation of assets and closure of the business. Chapter 11 offers many advantages to those who qualify, including time to reorganize.
What Is Involved in the Chapter 11 Bankruptcy Process?
The first step in bankruptcy is filing a petition. Once filed with the U.S. Bankruptcy Court, the business will receive an automatic stay which stops creditors from collection actions. Under the supervision of the court, the business will create a reorganization plan for repaying creditors. This type of plan will allow the business to repay a much lower amount than is actually owed. The goal is for the business to become profitable. The reorganization plan will place creditors into different classes to determine the priority for repayment. Finally, the reorganization plan must be voted on by creditors and approved by the court. If the reorganization plan is approved, debts that existed before the confirmation date are discharged. The debtor will be required to repay creditors in accordance with the agreements and operate in compliance with the terms of the reorganization plan.
Can Chapter 11 Bankruptcy Help a Small Business?
Chapter 11 bankruptcy is available to qualifying small businesses with fewer than 500 employees. However, many Chapter 11 bankruptcies are often converted to Chapter 7 because the court decides the business has little or no chance of becoming profitable. It is important to note that bankruptcy court exerts greater oversight of small business Chapter 11 filings than for other types of bankruptcies. While this type of bankruptcy does offer some advantages, it can also cost more money for the small business.
How an Attorney Can Help
If your business is heavily in debt and you believe bankruptcy to be the only way out, speak with the bankruptcy attorneys at Oswalt Law Group in Phoenix. We can offer you many valuable resources and the benefit of our extensive experience with bankruptcy law. Give us a call today to see what your best options are.