Businesses can suffer financial difficulties just like individuals. When their finance problems reach a critical point, Chapter 11 bankruptcy may be the answer.
Before seeking Chapter 11 bankruptcy protection, it is important to understand what Chapter 11 bankruptcy is and can do for your business.
What is Chapter 11 Bankruptcy?
Named for the chapter that contains the regulations in the United States Bankruptcy Code, Chapter 11 is commonly reported in the news when major companies, such as General Motors or K-Mart file for protection. However, the code is available for businesses of any size, allowing the company to restructure finances through a reorganization plan approved by a bankruptcy court.
Chapter 11 protection allows the business to balance income and expenses as well as regain profitability while remaining open for business. It is also possible for a company to sell assets and downsize in order to pay what it owes.
Consent of Creditors
Chapter 11 bankruptcy protection can be more stressful than other types of bankruptcy as you must secure the consent of the creditors prior to submitting your reorganization plan. If the creditors do not provide consent, your only option is to seek other options to repay creditors or file Chapter 7, which will require liquidation of assets.
In some cases, a creditor may be swayed into approving the plan if they can be convinced that they will obtain more of what they are owed through Chapter 11 as opposed to straight liquidation of assets.
How Common is Chapter 11?
Chapter 11 is less common than Chapter 7 and 13 because most individuals under financial strain have a lower income level and higher debt threshold.
Although Chapter 11 is used primarily by businesses, it is possible for an individual to file for Chapter 11 if the level of their debt makes Chapter 13 impractical or illegal. Businesses often choose Chapter 11 because it allows the company to remain in operational while finances are reorganized and creditors are paid.
If you or a loved one has a business that is struggling financially, or you are an individual who cannot file under Chapter 7 or 13, contact Georgette Miller and Dilworth Paxson today to learn what a New Jersey Chapter 11 bankruptcy attorney may be able to help you start down the path of financial freedom. You can arrange for your initial consultation by calling us today or visiting us online.