Many problems can occur to businesses; one of the most prevalent is business debt & bankruptcy. Finances can be hard to manage, especially as the owner of a business. Sometimes business debt can seem unbearable, as if there is no way out besides bankruptcy. As a business owner, you have options as to what kind of bankruptcy to file.

A small business owner can file Chapter 7, Chapter 11 or Chapter 13 bankruptcy. Keep in mind that before you decide to file any form of bankruptcy, it is important to speak with a lawyer to ensure that bankruptcy is the best option to get your business debt resolved.

What are the different types of bankruptcy?

There are three different types of bankruptcy available to businesses. Chapter 11, Chapter 7 & Chapter 13 bankruptcy.

Chapter 11 bankruptcy is most regularly used by companies that want to continue to do business during and after the bankruptcy process. For this reason, Chapter 11 is a better choice than filing a Chapter 7. Chapter 7 bankruptcy does not allow a business to operate because they sell all of their assets in order to pay off their business debts. Individuals commonly file a Chapter 7 or a Chapter 13 bankruptcy. Businesses can only file a Chapter 13 bankruptcy if you are the sole proprietor and you are seen as the same entity.

Chapter 11 Bankruptcy – Business Reorganization

Chapter 11 bankruptcy, or reorganization, allows a debtor to reorganize their finances through a plan which is approved by the bankruptcy court. This allows the small business to change payment terms and reduce their business debt. Reorganization allows small businesses to pay off debts over a period of time, without having to sell all of the assets. The reorganization that occurs with a Chapter 11 bankruptcy allows the business to continue operations. When filing Chapter 11 bankruptcy, it is a good idea to seek legal advice from a lawyer. This is because Chapter 11 bankruptcy is typically harder to file than Chapter 7 and Chapter 13.

What should I expect when filing Chapter 11 bankruptcy?

Once a Chapter 11 is filed, all debt collection actions and foreclosures are put on hold.

Normally, for large companies, a creditors committee is put together to secure the interests of unsecured creditors. This committee can keep all of the information for the attorneys and other professionals at the debtor’s expense. Forming a creditors committee can be fairly expensive. In small business cases the court can declare that there is no committee appointment allowed.

For most Chapter 11 filings there is no deadline unless declared by the bankruptcy court. However, in the case of a small business, the debtor only has 300 days to propose a plan. The court can extend the deadline, if the debtor can prove that a plan will get approval within a reasonable amount of time.

Sometimes, creditors will file competing Chapter 11 plans. This usually provides for liquidation or takeover of the debtor’s assets. In most cases, debtors only have 120 days exclusively after they file for bankruptcy to propose a plan. However, for small businesses, the exclusive period is lengthened to 180 days. A longer exclusivity period reduces the risk of the debtors losing their business.

If a plan is not approved within 180 days of filing, any of the creditors may submit a plan to the court for consideration. The court may approve a plan even if some creditors do not. This can happen if the court declares the plan is fair to all of the creditors involved.
At the same time, the court may decide that a small business or person does not have enough assets to follow a reorganization and repayment plan forcing the company to convert to a Chapter 7 bankruptcy.
Most of the time, part of the debt is forgiven, just like in a Chapter 13 bankruptcy. Creditors that are affected are given the opportunity to vote on the reorganization plan. After the plan has been approved, the court provides the final confirmation.

Debtors in most Chapter 11 bankruptcies must have a disclosure statement, given to the court for approval and copies provided for the other parties involved. The bankruptcy court can waive the disclosure agreement, in small business cases, which can speed up the reorganization process while reducing costs.

Choosing the right lawyer to help you through the process with your small business bankruptcy is essential to protecting your business, and helping your company will thrive in the future.

Who can help me with my Chapter 11 bankruptcy?

Understanding the ins and outs of a Chapter 11 bankruptcy can be hard; however with the help of a lawyer from Hall and Navarro, it can be easily understood.

J. Michael Hall, partner at Hall and Navarro, has many years of experience in small business bankruptcy. He has worked with many small businesses in Statesboro, GA, Springfield, GA and surrounding areas to file Chapter 11 bankruptcies. J. Michael Hall has been working with small businesses to obtain debt relief for over 30 years.

Please contact us online, or email receptionist@hlg-pc.com for more information or to schedule your consultation.