Pros and Cons of Chapter 11 Bankruptcy

As a business owner, juggling mounting debt, calls from creditors, the threat of losing your business and more can be overwhelming. Whether your business is a sole proprietorship, partnership, LLC, corporation or more, you may question what the best route forward is when finances dwindle and your options seem scarce.

When your company faces seemingly insurmountable financial woes, filing for bankruptcy may provide both the relief and decisive action you need. Many businesses can benefit from Chapter 11 bankruptcy, particularly if you wish to recover your company and move forward, rather than shut the doors. However, Chapter 11 has both pros and cons for any company:

Advantages to filing for Chapter 11 bankruptcy

Chapter 11 bankruptcy is commonly referred to as “reorganization bankruptcy.” Essentially, it allows your company to reorganize its debts after the bank issues an automatic stay. Benefits to Chapter 11 bankruptcy include:

  • Your business can continue to operate. While your company begins to repay its debts under a reorganization plan, you can continue to operate.
  • Your creditors will stop harassing you. Due to the automatic stay in place, you will get a much-needed break from constant calls to focus on a plan.
  • You can renegotiate certain debts. As part of your reorganization plan, your business may attempt to renegotiate leases, contracts, and more.
  • You can get a second chance. With extra time, the opportunity to dismiss some debts and contracts, and more, your business can get the fresh start it needs.

The opportunity to continue operating your business while working through repaying your debts can provide several more advantages, including the ability to retain your workforce and potentially avoid layoffs.

Disadvantages to filing for Chapter 11 bankruptcy

While Chapter 11 can be beneficial to many companies, it also has several cons to consider. Chapter 11 bankruptcy can be both expensive and lengthy. Because of this, many small businesses tend to seriously consider whether Chapter 11 is right for them over Chapter 7 or Chapter 13.

However, even with the costs and time necessary for Chapter 11, it is not just for large corporations. Taking the time to create a thoughtful, well-structured plan to repay debts, work with creditors and renegotiate other debts can outweigh the negatives. An attorney can assist in identifying the right option for you and helping you move forward in a productive way.

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