Chapter 11 bankruptcy is an important resource for businesses that are struggling but wish to remain in business. Chapter 11 bankruptcy is a reorganization bankruptcy option like Chapter 13 bankruptcy is a reorganization personal bankruptcy option.
Chapter 11 bankruptcy can provide benefits to a struggling business including allowing the business to remain operational during the process and to also provide time and resources for the company to return to the path of profitability. Businesses struggling with overwhelming debt can benefit from the automatic stay that goes into effect once the bankruptcy filing is made, allowing them to seek other sources of capital, and struggling business owners can also benefit from familiarity with the business bankruptcy process.
As part of the Chapter 11 reorganization bankruptcy process, the business has the opportunity to renegotiate leases and contracts and may have some debts partially discharged. Creditors have an incentive to work with the business because the process may allow them to receive more than they otherwise would. Creditors are placed in different classes during the process and creditors who have first priority for repayment include taxes, employees and stockholders. Secured and unsecured creditors are also placed in different classes. The reorganization plan developed with the help of the bankruptcy court must be voted on by the creditors and approved by the court.
Once the reorganization plan is confirmed, debts that existed prior the bankruptcy but are not addressed by it, are discharged. The business must then comply with the reorganization plan in good faith which allows them the opportunity to move forward and to be successful once again. Bankruptcy protection can provide important relief to both businesses and individuals which is why both should be familiar with this important legal resource.