Chapter 11 Bankruptcy

When businesses and corporations find that their debts outnumber their assets, they may choose to declare bankruptcy. If the company is in dire straits, it may declare Chapter 7 bankruptcy, which would require it to permanently shut its doors and liquidate (sell off) its assets. However, this is not the best choice for every struggling business.

If a company has prospects for future growth and profitability, though, it may declare Chapter 11 bankruptcy. Under this chapter, the business will gradually repay its debts through a reorganization plan. If your business is facing severe financial difficulties, this may be a good option for you to consider. To learn more, contact Chaifetz & Coyle, P.C. at 443-546-4608.

The Elements of Chapter 11

Chapter 11 is much like Chapter 13, except that it is for businesses instead of individuals. Unlike Chapter 7, businesses that file under Chapter 11 are not required to liquidate all of their assets in order to pay creditors. Instead, Chapter 11 bankruptcy involves restructuring a business’s finances so that it can repay its creditors and remain in business.

During the period of restructuring, businesses usually must sell any assets that are not vital to everyday operations. This may include selling divisions of the business to other entities or laying off employees.

Businesses that declare Chapter 11 bankruptcy should have a new business plan going forward, as failing to become profitable in the long term may lead a company to file a second bankruptcy claim in the form of Chapter 7. In some cases, businesses that began the bankruptcy process under Chapter 11 may have to switch to Chapter 7 in order to repay their creditors.