Chapter 11 Tips: When to Consider Small Business Bankruptcy

When you own a small business and you’ve begun to lose your profit base, or the cost of running your business has begun to outweigh the amount of money you’re making from the products or services you offer, you may be considering filing for a chapter 11, or “reorganization”, bankruptcy. The fact that your small business isn’t making the amount of financial gain that was expected usually isn’t enough reason by itself to file for small business bankruptcy, however. There are some situations where a small business may consider filing for a chapter 11 bankruptcy in order to attempt some of the following avenues to increase its profitability. Those reasons may include: 

The Restructuring of the Business’ Unsecured Debt 

A chapter 11 bankruptcy means that the small business will have the opportunity to do some restructuring of its unsecured debt owed to certain creditors, allowing the business to resolve the debts while only being held liable for a fraction of them.

• On top of being able to settle many of these unsecured debts to creditors, the business is allowed to retain possession of the property purchased through the unsecured debt in order to continue operating both during and after all of the bankruptcy proceedings
• This allows the small business to maximize its income through the settlement of debts at reduced costs.  

The Restructuring of most Structured Debt 

Chapter 11 bankruptcy filing also allows a small business to obtain a restructured loan term through any of its creditors that have financed the purchase of any type of real property, whether its a land lot or building.

• Even vehicle loans and loans given for purchasing equipment that is crucial to the operation of the business can be restructured. 
• Small businesses are able to restructure the terms of their current secured debts, obtaining new terms at reduced market values and interest rates. 
• The lender may be granted ownership of the property noted in the bankruptcy, but the small business owner still maintains possession of the items or buildings in order to successfully operate during and after the bankruptcy filing.  

Getting Help

Because of the mass of information that must be documented, and the sometimes confusing nature in which the documentation is to be filed, any small business owner who is considering filing for a chapter 11 bankruptcy should consult with both a financial professional and a legal professional in order to determine his or her best plan of attack in the filing process.