Many Tennessee entrepreneurs are able to sustain their businesses for a few years before the novelty wears off and they start losing customers. Consumers are always looking for the next big thing, so when they stop buying a particular product, companies start losing money. Of course, it’s common for companies to have their ups and downs during the course of the business. But when business drops steadily – with very little chance of becoming profitable again – a business bankruptcy may be the only option. But is this option only for large corporations or can start-ups and small businesses benefit from Chapter 11 bankruptcy as well?
Chapter 11 is available to all types of business, large and small. In order for a small business to file, it must submit the following to the court: copy of the latest federal income tax return, statement of operations, cash flow statement and copy of a current balance sheet.
Despite the fact that small businesses account for most of the filings, Chapter 11 is most commonly associated with large corporations. This is because small business filings typically get converted to Chapter 7 bankruptcies. Why? Because Chapter 11 is reorganizational bankruptcy. It does not get rid of debt completely, but instead allows the company to come up with a plan to trim costs and raise more money to pay back the debt.
Large corporations have a much better chance of surviving post-bankruptcy than a small business. However, this does not mean that profitability for a small business after bankruptcy is impossible. The business is given six months to negotiate with creditors and create a solid plan. However, it is true that many companies may be better off cutting their losses and eliminating debt through Chapter 7.
Source: FindLaw, “Chapter 11 Bankruptcy,” accessed Oct. 26, 2014