It isn’t easy to consider filing for bankruptcy, but it can provide much needed debt relief and offer the borrower a new start. Chapter 11 bankruptcy allows a reorganization of a business’s debts and assets. It may be the right option for companies that need time to restructure their debt.
The business will have an opportunity to present a reorganization plan to the court which may include downsizing, liquidating assets to pay creditors and renegotiating debts. The court must approve the plan and the business must be able to pay the debt over time.
However, the court will not allow the business to make certain decisions during the Chapter 11 proceedings without permission. Usually, the business cannot take out loans that will start after the bankruptcy is complete or sell assets other than inventory unless the court allows it. Also, court approval may be necessary to execute rental agreements, enter contracts with other entities and other business operations.
Advantages and disadvantages
One of the primary advantages of Chapter 11 bankruptcy is that the business can usually continue to operate during the proceedings. If the court finds that there is fraud, gross incompetence or dishonesty, it may not allow the debtor to operate the business and instead may appoint a trustee.
Chapter 11 bankruptcy can be complex and time consuming, which some businesses may see as a disadvantage. However, it can help struggling companies avoid losing the business entirely.
If a business has questions about Chapter 11 bankruptcy, an experienced attorney can provide guidance about whether it is right for them.