A business that files for Chapter 11 bankruptcy protection in Arkansas can continue to operate should it follow a particular set of rules. It will need to reorganize to do so–by changing its business approach, downsizing and eliminating overhead, or both. To effectively accomplish this reorganization, Chapter 11 bankruptcy provides a framework for working with creditors and a temporary respite from their demands, providing the reorganizing business with the ability to put together a reorganization plan and time to implement it.
In many cases, a business will be able to retain its assets, granted they work into the broader reorganization plan.
Debt Separation in Chapter 11
A Chapter 11 reorganization plan implements debt separation into different classifications–for example:
- Delivery van note securing the delivery van
- Storefront mortgage securing the storefront real property
- Note securing inventory
- Unsecured debts (credit cards, etc.)
The plan will then state how the court will treat each class–this “treatment” in the plan is, in effect, a modification of the original creditor contract. Upon confirmation of the plan, the terms in the plan become the new agreement, superseding the terms in existence before filing the bankruptcy case.
Depending on your business’s particular circumstances, whether to modify certain classes of debts would best be determined by consulting with an experienced bankruptcy attorney.
Arkansas Businesses Filing for Chapter 11
In Chapter 11, the appointed “trustee” will attempt to reorganize as many of the company’s assets as possible to pay off existing debt, including debt owed to investors and creditors. Company management continues to run the business, but all major decisions must be approved by the bankruptcy court.
For public companies, the business may continue to trade even while working through Chapter 11. There is no federal law prohibiting public trade of a company in bankruptcy.
Above all, it’s important to consider if the complete reorganization of debts and liabilities is worth the time, expense, and effort of a Chapter 11 filing. You may lose control of your business assets if they need to meet the broader scope of the reorganization. If you have an intact core business or are an individual with outstanding needs, it’s worth exploring your options. Natural State Law can be an effective source for those struggling in the Little Rock area. Call us at (501) 261-0226 to discuss how we can advise you through a potential Chapter 11 bankruptcy.