Business Insolvency: Why Chapter 11 May Not Be The Answer

Business insolvency is most commonly described as a business’ inability to resolve financial debt to creditors because of the fact that the business itself isn’t making enough money to both operate functionally and maintain its financial responsibilities to the lending institutions. In many cases, when the inability to resolve these financial issues isn't resolvable, the debtor files for a chapter 11 bankruptcy as a means of both reducing the amount of debt that is owed through the restructuring of all of the business’ debt and as a way to continue to function as a privately operated business. Because of the options a chapter 11 provides for business insolvency, many debtors in business situations feel that filing for a chapter 11 bankruptcy is the right avenue to pursue... and some find out in the long run that they should have handled the situation differently.  

Communication with Lenders 

There are other options for a business insolvency besides chapter 11 and one of the best is to talk to your lenders. Many lenders, especially lenders who are involved in business financing, appreciate debtors communicating with them openly about any issues they may be having before the debtor determines that filing for bankruptcy is their only option.

Many creditors have programs for businesses that end up in a position where they are at risk of either defaulting on the financing agreement or where they are in a position of having to borrow a substantial amount that the business might not be able to repay in order to continue operating. In the majority of cases, these lenders are more than willing to assist a business in figuring out a better option for both parties than having the debtor file for a chapter 11 bankruptcy.  

Filing for Bankruptcy Prematurely 

Some businesses simply experience slow economic growth, while others seem to immediately flourish. This factor alone can convince a hasty business owner to file for chapter 11 bankruptcy prematurely, before he or she realizes the true earning potential of the business that has been financed.

• The best thing to do with a new business that is experiencing a slow rate of growth is to talk with the associated creditors and arrange for any type of deferred payment programs or any reduced rate programs a lender may have for a starting business. 
• Another avenue, other than filing for bankruptcy, is to try and find a financial investor who might be willing to purchase a share of the business in order to allow the debtor to maintain other financial obligations. This could allow the business much needed time to flourish, allowing the debtor to easily maintain the business operation without ever having to file for a chapter 11 bankruptcy.  

Getting Help

Before filing chapter 11, you should strongly consider getting legal help. A qualified lawyer can explain all your options, both for bankruptcy and other methods of resolving business debt, and can help you to take the right steps to get your business into better shape financially.