Not every business can afford to stay open. Some businesses need more time to see their long-term revenue. Others might have been struggling to pay off their debt. Whatever the reason, if a business needs more time to start making money, filing chapter 11 bankruptcy can literally buy them that time.
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a reorganization plan that allows businesses more time to pay off their debt. This chapter is a great option for businesses if they are struggling with debt but want to stay in business to realize their long-term revenue plan. When a company files Chapter 11 bankruptcy, it is generally to buy more time to reorganize their debt.
What Happens in a Chapter 11 Bankruptcy?
In a chapter 11 bankruptcy, a business gets to come up with a debt reorganization plan that will show the court how the business will pay off their debt under the plan. The plan must be in the best interest of the creditors, not the business. Remember that the purpose of the chapter 11 is so that the debtor get a chance to pay off their creditors. If the debtor does not propose a reorganization plan, the creditors may come up with one.
Creditors cannot make further attempts to collect debt from a business when a chapter 11 bankruptcy attorney files chapter 11 for the business (with few exceptions). This gives the debtor more freedom to focus on making whatever shift or action necessary to follow the reorganization plan for paying off the creditors.
Probably the main advantage of a chapter 11 is that the debtor can stay and run its business as usual. This helps the business generate revenue while making efforts in paying off the creditors. However, some business operations are not allowed without the court’s approval. Some restrictions include decisions to sell assets or expanding business operations.
Businesses that need more time to get their debt reorganized can file a chapter 11. The debtor will be able to remain operating while making sure that they are fulfilling their obligations to the creditors. Sometimes, a chapter 11 can be a valid approach for businesses if they need more time for their longer-term business plan to come into fruition.
Filing for chapter 11 is one of the more expensive bankruptcies. A business should carefully consider if a chapter 11 is their best option before making the decision to file for one.