Should I File Chapter 11 Bankruptcy?

Closing down sale sign on shop windowWhen a business finds itself in financial trouble, filing bankruptcy may be the best option. Depending on the situation, you may decide between filing Chapter 7, Chapter 13, or Chapter 11 bankruptcy.

Chapter 7 requires you to liquidate the business, while Chapter 13 bankruptcy is only available to individual business owners, which excludes partnerships, limited liability companies, or corporations from filing. Often, the best choice for business owners that want their business to continue operating and to get back on its feet is Chapter 11 bankruptcy.

What Is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is similar to Chapter 13 in that it allows a business to reorganize, reduce debt obligations, and create a plan for repayment approved by the bankruptcy court. By filing Chapter 11, many companies have been able to balance out their incomes and expenses, continue operating, and even start making a profit again.

Many very prominent businesses have gone through Chapter 11, including General Motors, United Airlines, Kodak, Relativity Media, and Quiznos.

Benefits of Chapter 11 Small Business Bankruptcy

While Chapter 11 generally follows the same rules as any other bankruptcy, debtors that qualify as “small business debtors” are subject to a number of special procedures.

To qualify as a small business debtor, the business has to be in operation, and must not owe more than $2,490,925, excluding money owed to insiders, including family or business partners.

Small business debtors are subject to the following:

  • Additional Filing Duties – Small business debtors are required to submit more forms than are required for other Chapter 11 petitioners.
  • More Trustee Oversight – Small business bankruptcies often require more oversight from a bankruptcy trustee.
  • No Creditor’s Committee – The bankruptcy court may elect not to appoint a creditor’s committee in small business bankruptcies.
  • Repayment Plan Deadline – In other Chapter 11 cases, there is no deadline, but in small business bankruptcy, debtors are required to submit a repayment plan within 300 days of filing.

Contact a bankruptcy attorney in order to better understand the benefits of Chapter 11.



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