How filing for Chapter 11 bankruptcy can benefit a business

| Dec 31, 2015 | Chapter 11

At times, every business faces challenges. Often such challenges are financial in nature and stem from increased competition and loss of market share, economic downturns and underperforming investments. When a business is facing financial difficulties, it’s wise to seek the advice and assistance of an attorney who handles business debt reorganization and bankruptcy matters.

Chapter 11 bankruptcy provides business owners and businesses the opportunity to hit the pause button and formulate a plan for how to reorganize and strengthen business operations. From a business standpoint, the goal of the bankruptcy process is to restructure business operations to regain profitability.

Upon filing for bankruptcy, creditors must stop all collection efforts. This in turn allows a business the time and space necessary to formulate a plan for how to reorganize and restructure business operations. During the bankruptcy process, a business is also allowed to continue to operate normally which includes paying current employees.

In an effort to reduce or eliminate existing debts, a business may attempt to negotiate more advantageous terms for existing leases and contracts. Creditors are identified and grouped according to the nature of their debts which determines how such debts are handled. For example, outstanding government debts are given repayment priority while debts associated with vendor creditors are typically given lower priority.

Once a plan for reorganization has been submitted to and approved by the bankruptcy court, the terms for debt repayment and discharge must be followed. Additionally, any changes to a business’ operations that are outlined in the plan must be instituted and set into motion.

The Chapter 11 process is complex and an attorney who handles Chapter 11 bankruptcy matters will thoroughly review all financial documents and provide advice on how a business should proceed.

Source: FindLaw.com, “Chapter 11 Bankruptcy,” Dec. 29, 2015