How to Use a Chapter 11 to Reorganize Business Debt

When a business, either large or small, begins to realize that it cannot function at a level of profitability high enough to maintain the operation of the business while also meeting its financing terms, one of the options that is available is a chapter 11 bankruptcy filing. This specific type fo bankruptcy is designed to assist businesses that are at risk of not being able to repay their lenders and provides businesses the opportunity to resolve their debts while still operating the business as was originally intended. 

Understanding Chapter 11 Rules 

• Upon filing a chapter 11, the debtor must list all associated creditors and any property or assets the debtor may have obtained through those creditors.
• The creditors then have the choice to determine if the bankruptcy filing is the best way to recover even a portion of the funds that were lent to the debtor, or if they believe the debtor still has other options in order to satisfy the financial obligations in full. 
• The creditors decision is made through a review of a series of financial disclosure statements which are filled out by the debtor. 
• The debtor's financial statements must state everything that is crucial to the business operation that may be considered an asset, and show the difference between the debtor’s expenses versus the income being generated by the business.  

After this has been accomplished, the debtor is then able to discuss negotiations with each lender or creditor and set up either a repayment schedule for the debt that is owed, or the debtor is able to reorganize or restructure the terms of any financing that has been provided by a creditor. This means that a chapter 11 bankruptcy allows the debtor to continue operating the business and retain possession of all of the financed equipment, while working to repay a reduced amount of debt to creditors through the reorganized terms of the financing. Basically the debtor is able to keep all of the property, even though the lenders retain ownership through the bankruptcy, and the debtor continues to operate the business as a means of satisfying all of the debts that are owed to creditors associated with the business.  

Getting Help

Because of the veritable mountain of paperwork and documentation that is required in order to successfully navigate a chapter 11 bankruptcy, any debtor who is considering pursuing the option in order to restructure outstanding business debts should definitely obtain the services of a legal professional.