how bankruptcy chapter 11 worksIndividuals who want to know how bankruptcy Chapter 11 works should know that this form of bankruptcy is typically reserved for businesses, but individual debtors have also filed Chapter 11 before. Many businesses experience highs and lows. When a business accumulates more debt than it is able to pay off, the business may file Chapter 11.

What Is Chapter 11?

This is a type of business bankruptcy that allows a company to undergo a structured reorganization. During this reorganization, bankruptcy laws protect the business. Chapter 11 should not be mistaken for Chapter 7. Under Chapter 7, a business closes and sells off the remaining assets to pay off debts.

Should Your Business File Chapter 11 Bankruptcy?

Business owners who are wondering how bankruptcy Chapter 11 works should speak with an experienced bankruptcy attorney. Chapter 11 restructures businesses and business financing. A business is protected from its creditors during this time period. The court places an automatic stay, or hold on any ongoing lawsuits or judgments against the business.

Business owners should be aware that the restructuring process can actually leave their business with nothing at all if the assets do not exceed the amount owed to creditors. If this is the case, the business’ creditors can take possession of the business.

How Bankruptcy Chapter 11 Works:  The Restructuring Plan

However, if the debts do not equal more than the assets, the court, owner and creditors will create a plan to help the company get out of bankruptcy. The business owner creates the plan. The court, creditors and all stockholders then approve or disapprove the plan.

During this time, the court does not allow the business to be involved in any transactions that are not a normal part of its daily routine. For example, the business cannot participate in mergers, sell offs or expansions until the proceedings are over.

Business owners should make sure they stay in compliance with all agreements of the plan. If any terms are violated, the bankruptcy could be changed to Chapter 7 bankruptcy. This change would cease operations.

When considering how bankruptcy Chapter 11 works, it is still a feasible option for businesses that need restructuring in order to get debt relief. Consult with a bankruptcy attorney for advice and guidance.

Are you looking to restructure your Atlanta area business by filing Chapter 11? Get a free consultation by contacting Douglas Jacobson Law Firm.