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How Chapter 11 bankruptcy can benefit small business owners

Accounting for 54 percent of total U.S. sales, small businesses play a critical role in our nation's economy. Additionally, the estimated 28 million small businesses also account for roughly 55 percent of U.S. jobs and occupy between 30 to 50 percent of all commercial building space.

Along with their many successes, small business owners also face numerous challenges including taking on large amounts of debt for startup and business expansions and weathering unexpected economic downturns. Inevitably, some businesses experience financial challenges that make it difficult to impossible to continue on with normal operations. As debts mount and creditors threaten legal action to recoup payment, for some businesses, filing for Chapter 11 bankruptcy may be the best option.

Much like Chapter 7 bankruptcy provides an individual who is struggling with debt financial relief, Chapter 11 affords business owners the opportunity to reduce debts and restructure business operations.

When a business owner decides to file for Chapter 11 bankruptcy, an automatic stay is issued. During this time frame, business owners are provided protection from creditors who must cease all collection efforts. Free from the constant harassment from creditors, a business owner is afforded time to formulate and propose a plan to reorganize his or her business.

The Chapter 11 bankruptcy process is complex and small business owners who are contemplating filing for bankruptcy would be wise to discuss their options with an attorney. An attorney can assess a business owner's options, provide advice and assist throughout the entire Chapter 11 process to ensure that a business emerges from bankruptcy poised for financial success.

Source: American Bar Association, "Chapter 11 Bankruptcy: A Primer," Oct. 26, 2015

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