In Uncategorized

If your business is at the point where bankruptcy is becoming a serious consideration, it’s important to understand what that filing actually means.

A business that files for Chapter 11 bankruptcy protection intends to continue operating, but it needs to reorganize in order to do so–by changing its business approach, downsizing and eliminating overhead, or both. In order 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 plan of reorganization and time to implement that plan.

The Chapter 11 plan of reorganization your business implements will separate its debts into different classifications–for example: (1) delivery van note securing the delivery van; (2) storefront mortgage securing the storefront real property; (3) note securing inventory; and (4) unsecured debts (credit cards, etc.). The plan will then state how each class will be treated–this “treatment” in the plan is in effect a modification of the original contract with the creditor. Upon confirmation of the plan, the terms in the plan become the new contract, superseding the terms in existence before the filing of 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.

Business Considerations

In most cases, you’ll be able to continue operating your business, but the bankruptcy court will need to approve major decisions that are outside the ordinary course of business. If your business is a used car dealership, it would not need court approval to buy and sell cars, but it would need court approval to buy or sell a piece of real property, because that is not in the ordinary course of business.

Your business will be able to continue paying your salary, but the most important consideration when filing for Chapter 11 bankruptcy protection is that you will no longer be operating your business primarily for your own benefit. You will be operating your business in order to pay your creditors.

This means that while the business will be allowed time to get its plan in place and begin reorganizing, this time is not unlimited.

Depending on its circumstances, your business could have up to 180 days following the filing of the bankruptcy case to propose a plan of reorganization without concern for competing plans proposed by creditors.

Keep in mind that there’s no set duration for a Chapter 11 case. These cases can last for long periods of time or wrap up quickly, depending on the business’s particular situation. Also, if the court or creditor(s) determines that you’ve mismanaged assets, a bankruptcy trustee could be appointed and you could lose control of the business.

Above all, it’s important to consider if the complete reorganization of your debts and liabilities is worth the time, expense and effort of a Chapter 11 filing. If you have an intact core business, it’s worth exploring your options.

It’s important to talk with a qualified bankruptcy attorney and Natural State Law can be an effective solution for you in the Little Rock area. Call us at (501) 261-0226 to discuss how we can advise you through a potential Chapter 11 bankruptcy.