When many people think of a company “going bankrupt,” they envision shuttered storefronts, clearing out inventory, and the end of an era. However, Chapter 11 bankruptcy provides a framework for businesses to reorganize and pay off their debts while continuing to operate. In most cases, operations can continue without interruption even as the company files a petition for bankruptcy.
Chapter 11 offers struggling businesses a chance to become profitable again. By preventing collections actions, reorganizing some debt and discharging the rest, your business can get back on track.
Protecting against collections
Once a business or individual files for Chapter 11, the court issues an automatic stay on any potential collections or foreclosure actions by creditors. No more calls from bill collectors. The stay gives a business the chance to focus on creating a plan to reorganize its debt.
Organizing and renegotiating debt
The essential part of Chapter 11 bankruptcy is the reorganization plan. A business can renegotiate contracts, leases and other obligations with their creditors – who, if they want to get paid, have an interest in being flexible. The plan prioritizes certain creditors and can even modify the amounts owed.
Discharging additional debt
When a court confirms a business’s Chapter 11 reorganization plan, any debts that existed before confirmation and not addressed in the plan get discharged. Essentially, those debts are forgiven. In some cases, the court can even confirm a reorganization plan over objections from a creditor.
Deciding whether to file for bankruptcy requires careful consideration. Chapter 11 offers many benefits, but also takes a significant amount of time and resources. Consulting with an experienced bankruptcy attorney can help business owners determine the best path forward.