Chapter 11 bankruptcy allows a debtor to receive a fresh start. Often referred to as a “reorganization bankruptcy,” there are specific guidelines that have to be met for a business to qualify for this version of bankruptcy. It’s important to note that Chapter 11 bankruptcy is often considered to be the most complex form of bankruptcy, so it’s important for a company to carefully consider whether this is the best option for obtaining debt relief.
If it’s a voluntary petition, debtors have to file specific information in order to potentially qualify, while creditors can file for an involuntary petition if your business meets certain debt-related circumstances. Essentially, the court will step in to help the business restructure its debts and obligations. Your company may propose its own reorganization plan, as long as it honors the best interests of creditors. Otherwise, creditors may move forward with proposing a reorganization plan.
Above all, a Chapter 11 bankruptcy proceeding primarily affects the business. A traditional Chapter 11 may affect the rights of equity security holders in the business, depending on the type of plan that is proposed and whether new value is contributed to the business. Corporations, partnerships, and limited liability companies (LLCs) are most likely to file for Chapter 11 bankruptcy. Additionally, the Small Business Reorganization Act of 2019 made it easier for small businesses (those with less than $2.7 million in debts that also meet other criteria) to successfully navigate the Chapter 11 filing process and for the equity security holders of those small businesses to maintain control of their businesses post-reorganization.
The highly involved and technical nature of Chapter 11 bankruptcy proceeding means it’s crucial to have proper representation that understands every step and how it can affect your own personal standing, whether as an owner, founder, or investor. The skilled and dedicated bankruptcy attorneys at Natural State Law, PLLC are prepared to help Little Rock businesses explore all of their options for achieving debt relief, so reach out today to get started.