Filing Chapter 11: What to Do When Insolvency is a Problem for Your Company

Company insolvency is something that no business wants to face. If your cash flow is not enough to pay your debts or if you are facing serious trouble managing the finances of your business, you may wonder what is the best answer for you. You may, in particular, be considering chapter 11, which is a way in which to reorganize and restructure your business through a business bankruptcy. However, chapter 11 may not necessarily be the right answer for company insolvency. A lot depends on the size of your business and your personal situation.

Understanding Chapter 11

Chapter 11 is generally appropriate for larger business and business entities, or for those businesses that are a separate legal entity from their owner. If, for example, you are a sole proprietor, then chapter 11 probably isn't right for you, since a business bankruptcy and a personal bankruptcy are essentially one in the same when a business is organized as a sole proprietorship. 

A chapter 11 involves:

• Renegotiating debts with business creditors according to guidelines set by the court or a bankruptcy trustee
• Reorganizing the business to prove it can become profitable- this may include turning the management of the business or its finances over to a trustee or to a person appointed by the court

The paperwork involved with filing a chapter 11 can be complex, as can the reorganization process that occurs. The process can also be very time consuming- some businesses operate in chapter 11 status for years until they are able to get a handle on their debts and become profitable.  The major benefit to a chapter 11, however, is that it allows the business to continue functioning, unlike a chapter 7 liquidation bankruptcy. 

If your business is too small for a chapter 11, however, or if you are a sole proprietor and your business and personal assets are one and the same, then chapter 13 may be a better option for you. A chapter 13 is similar to a chapter 11, however it allows you to restructure debt into a repayment plan with less steps (and less cost) than a chapter 11 would usually involve. If your business is larger though, a chapter 11 is a better choice (although you should be aware that business with over $1 million in assets have a more complex process to go through when filing chapter 11)

Getting Help

If you are facing company insolvency, you should strongly consider speaking with an experienced bankruptcy lawyer. Your attorney can help you to take the right steps for your company so you can become better equipped to get your business running in a profitable way.