How to use Chapter 11 Bankruptcy to Turn Your Business Around...

Chapter 11 Bankruptcy...

I've started several businesses on a shoestring budget, so I understand how difficult it was for you to get your business up and running.

You may have run into a bad business deal, tax liens, or your business debt may simply be more than your business can currently handle. If so, Chapter 11 may be the right debt solution for your business.

It doesn't matter if you have a corporation, Limited Liability Company, partnership or are a sole proprietorship; you can use Chapter 11 Bankruptcy to reorganize and turn your business around.

How does a chapter 11 bankruptcy reorganization work?

First of all, before you can file for chapter 11 relief you have to receive credit counseling from an approved agency and obtain a certificate to prove it.

Your Chapter 11 case starts once you file a petition and the following documents:

(1) schedules of assets and liabilities

(2) a schedule of current income and expenditures

(3) a schedule of executory contracts and unexpired leases

(4) a statement of financial affairs

Chapter 11 Debtor in Possession.

As the owner of your business, generally you will be allowed to act as a "debtor in posession". In other words, you serve as the bankruptcy trustee and continue to run your business, subject to certain limitations.

The basic objective of Chapter 11 is to reorganize your business. It allows you to file a plan to get relief and turn your business around.

If your business is a corporation, it is considered a separate entity from it's stockholders. So, one benefit to this is you don't have to put your personal assets at risk in a chapter 11 case. The only asset that may be at risk is your ownership interest in the company itself.

However, if your business is a sole proprietorship, you and your business are considered as one. So, unfortunately your personal and business assets are at risk. A partnership is usually treated as a separate entity, like a corporation, but in some circumstances the partners' personal assets may be used to pay your businesses' creditors

The Automatic Stay.

Just like Chapter 7 and Chapter 13 bankruptcy proceedings, chapter 11 bankruptcy also has an automatic stay provision.

So once you file the chapter 11 petition, all judgments, collection activities,foreclosures, and repossessions of property are immediately halted. None of your business' creditors may proceed with efforts concerning any debt or any claim they may have.

But beware, there are certain claims that may not be subject to the automatic stay. So be sure to consult an experienced bankruptcy attorney.

What if I need capital during the chapter 11 bankruptcy?

You may be able to borrow capital from a lender, during the chapter 11 bankruptcy period, by giving the lender a court-approved "superpriority" over other unsecured creditors or a lien on property owned by your business.

The chapter 11 plan...

Any one of your business' creditors may file an objection to your Chapter 11 plan. The court has to hold a hearing regarding confirmation of your plan.

In order for the court to approve your plan it has to determine three things:

(1) The plan is feasible (i.e. the plan won't result in liquidation of the business).

(2) The plan is proposed in good faith.

(3) Both you and the plan are in compliance with the Bankruptcy Code.

Chapter 11 discharge...

Generally speaking, confirmation of the plan serves to discharge any debts incurred prior to the date of the confirmation.

After the plan is confirmed, you will be required to make the payments under the plan and comply with all of the provisions of the plan of reorganization.

The reorganization plan creates new contractual rights, and replaces or supersede any contracts you entered into before the bankruptcy.

Chapter 11 can be a useful tool to help you to turn your business around. I would highly recommend you hire an experienced bankruptcy attorney to handle it for you.

However, if you decide to take it on yourself, you can find more detailed information at the U.S Bankrupcy Court website.

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