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A brief intro to Chapter 11 bankruptcy for businesses

| May 18, 2021 | Firm News

Those in the U.S. have the option of picking from six chapters of bankruptcy, depending on their circumstances. In general, consumers are most familiar with Chapter 7 bankruptcy and Chapter 13 bankruptcy, the most commonly filed ones.

There is a third kind individuals may choose called Chapter 11 bankruptcy, usually filed when their debts exceed the Chapter 13 restrictions. However, they seldom do so, with businesses (including major organizations like the NRA) being the most frequent filers.

What is Chapter 11 bankruptcy?

The simplest way to describe it is a reorganization of finances. Filing for Chapter 11 bankruptcy involves the development of a written plan (a certain number of creditors must approve it) to reorganize existing debts and pay them off. Downsizing is an example of a proposed action that might make it into such a strategy. The typical deadline for submitting this proposal is four months. In some cases, it may extend to 18. The process also involves an appointed United States Trustee from the U.S. Department of Justice and a team of advisors.

What are some benefits of filing for Chapter 11 bankruptcy?

Businesses gain numerous advantages from Chapter 11 bankruptcy, including:

  • Business owners stay in control and retain the ability to continue operations
  • Through restructuring, there is the opportunity to make payments smaller and spread them out over a longer amount of time
  • An automatic stay on collections takes effect
  • Companies may obtain emergency financial relief to keep running
  • Depending on the plan, the business may receive a debt discharge

While Chapter 11 bankruptcy is more expensive, complex and time-consuming than other kinds, it helps keep businesses in arrears in operation. The process is also open to virtually any company, from small-time entrepreneurs to large corporations.