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Using a Chapter 11 Bankruptcy to Reorganize the Business

For many business owners, periods of downtime are just a cost of doing business and the trick is sitting tight until sales pick up. But for businesses facing mounting bills with no end to the problem in sight, Chapter 11 bankruptcy reorganization may be the answer.

A history of success

Changes in shopping behaviors and consumer desires fuel the business market, and businesses may need to restructure in order to keep up with the evolving market. Although many retails stores are shutting their doors and seeking bankruptcy protections as a result of reduced foot traffic and online competition, other well known industry giants have also found the need to restructure. Large companies such as Marvel Comics, Macy’s and General Motors have used Chapter 11 bankruptcy to reorganize debt and forge ahead.

Determining eligibility

Any business or individual is eligible to file for Chapter 11 bankruptcy. The definition of business is fairly broad and includes sole proprietorships, partnerships and large corporations. Chapter 11 bankruptcy is often necessary for larger enterprises with debts that exceed the Chapter 13 limit of $394,725 of unsecured debt and $1,184,000 of secured debt.

The basic process

The process starts with the filing of the Chapter 11 bankruptcy petition. After the petition is filed the debtor must submit various bankruptcy schedules with income, debt and expense information to the court. Once the schedules have been reviewed, a meeting of the creditors takes place wherein creditors may attend and ask questions about the business’s financial affairs.

Once the meeting of creditors is completed, the debtor must produce a workable business reorganization plan to the creditors and the court. Generally, after the plan has been approved by both the court and the creditors a third party is appointed to execute the restructuring and handle logistics, such as payments to creditors. The debtor is discharged from bankruptcy after the majority of debts have been repaid according to the payment plan.

While the thought of bankruptcy often seems like an admission of failure, in actuality it offers business owners a chance to refocus their efforts. The thorough financial analysis will draw attention to stagnant markets and highlight new focus areas. The ability to temporarily suspend debt obligations provides a competitive advantage for the remerging business. For business owners with an eye towards the future, Chapter 11 could present a way to persevere

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