If your business can't pay its bills and you file chapter 11, the United States bankruptcy laws allow for the restructuring or reorganization of the terms of debts associated with the business. This restructuring of debts also allows the business to continue functioning, as well as to maintain possession of all property that may be considered an asset, such as real property and equipment. The business may retain assets as a means of generating the income necessary to comply with the proposed repayment plan for the bankruptcy, and as a means of resolving outstanding secured and unsecured debt.
Advantages of Chapter 11 for Businesses
Because of the reorganization rules, upon filing for a chapter 11 bankruptcy, the debtor has the means to reduce not only the amount of debt the business is responsible for, but also to reorganize and restructure the terms of all of those debts as well.
- This is beneficial because the debtor will be able to renegotiate the terms of the financing
- He may only have to pay back a portion of the debt owed
- The debtor can generally alter the length of the financing term, as well as renegotiate fixed interest rates in order to make paying off the debt a more attainable goal for the debtor.
Most creditors aren’t very fond of this practice, so unless it’s shown that chapter 11 bankruptcy is the only way the creditor is going to recover any of the money that was lent, a lot of creditors will object to a chapter 11 filing at the meeting of creditors (which is held in every bankruptcy case.)
The most important objective for a debtor to maintain while filing for a chapter 11 bankruptcy is to keep the business functioning as normally as possible, even while the bankruptcy proceedings are being held. This will show both the court and the associated creditors that agreeing to the bankruptcy filing and allowing the debtor to restructure debts will net the creditors more of a return than if they oppose the bankruptcy filing before the judge. It will also show the creditors that, if restructured properly, the business they opted to assist will be able to recover and turn a profit.
Business bankruptcy, especially under chapter 11 reorganization rules, is confusing. You should consult with an experienced attorney early in the process as your lawyer can help you complete all required court documents and create a reorganization plan that has a better chance of being approved by the court and your creditors.