Chapter 11 Business Bankruptcy

Is your business struggling to make payroll, pay the rent or your lease? You may want to consider restructuring with Chapter 11.

Businesses are experiencing an unprecedented strain on their financial resources. Revenues have dried up while expenses have continued to mount. Even though some federal aid is available, it’s not nearly enough to keep many businesses open. While filing for bankruptcy protection would have been unthinkable only a few months ago, it may now be the best viable option for your business’ survival. One type of bankruptcy specifically geared for keeping businesses healthy while working through temporary financial setbacks is Chapter 11 business restructuring and reorganization.

Chapter 11 Reorganization

Chapter 11, included in the U.S. Bankruptcy Code, enables businesses to reorganize their debt and pay creditors while continuing to operate. Under Chapter 11 protection, businesses retain their assets while working with creditors to set up a debt-settlement plan that often includes a discounted payback schedule. The goal is to get past the financial challenges caused by COVID-19 or other issues impacting the business.

Chapter 11 business reorganization and restructuring can be used by sole proprietors, partnerships, limited liability companies and corporations. From small business bankruptcies to large corporation filings, Chapter 11 contains provisions for all business sizes and types.

Debt Relief

Once a Chapter 11 case is filed with the bankruptcy court, an automatic stay takes effect that prevents creditors from enforcing judgements and implementing collections, foreclosures and repossessions against a business. This “breathing room” gives business owners the time to formulate a restructuring plan that will help make the business profitable again. During reorganization, businesses renegotiate leases and repayment terms with creditors and, only when appropriate, undertake the liquidation of underperforming assets.

Chapter 11 Advantages

Chapter 11 business bankruptcy is often a better alternative than adding more debt with an SBA loan. This is particularly true if the business has high-end lease or mortgage payments or equipment loans. Through Chapter 11, these debts can be extended over a much longer period than typical SBA loan terms, or in the case of equipment, they can be revalued and payments reduced. This allows the business to gain a significantly better cash-flow position moving forward.

The Bankruptcy Process

The first step is to meet with a bankruptcy attorney to evaluate your financial situation and go over potential bankruptcy scenarios.  Select an attorney with a high bankruptcy court confirmation rate. The legal team of the Law Offices of Steers & Associates has been representing individuals and businesses before bankruptcy judges for over 20 years. Its initial consultation is free.

If filing for Chapter 11 is the right move for your business, the next step is to officially file with the bankruptcy court. Your bankruptcy attorney will have carefully reviewed your business operation, the secured and unsecured debt structures, and then properly scheduled the correct amount of claims, the use of cash collateral, dealt with adequate protection issues including business ownership and operations, while preparing the documents to file on your behalf. Your business then has up to 18 months to create a reorganization plan while being protected from creditors, which will then allow it to successfully emerge from bankruptcy protection from creditors.

Chapter 11 Case Example

Here’s one example of how bankruptcy worked after the owners of a California printing company filed for Chapter 11 protection:

  • The approved reorganization plan included re-valuation of its major printing presses from $3.1 million to $1.2 million (which reduced loan payments).
  • The plan resolved a creditor’s blanket lien on all of company’s corporate assets and reduced the amount of real estate loans on multiple business properties and a personal residential estate.
  • The company retained its management and all its employees. It will repay only 5% of the company’s general unsecured debt at 0% interest over 60 months as payment in full.

 

Bankruptcy judges lean toward helping businesses regain their footing and a return to profitability. Creditors are usually willing to work with businesses that file for bankruptcy, calculating that their chances of recouping at least a portion of their unpaid debt is better under bankruptcy than if a business were to close its doors.

Chapter 11 Costs

Because of the complex reorganization element of Chapter 11 bankruptcy, costs will be higher than other types of bankruptcy filings. However, Chapter 11 is the only bankruptcy option for businesses that want to continue to operate. Further, the return-on-investment from legal fees spent versus adding additional loan expenses to keep afloat is substantially better, as it will generate sizeable savings from reduced payments on existing loans, leases, and equipment.

For more debt relief information or to arrange a phone or video-conference meeting, call the Law Offices of Steers & Associates at 800-824-5416, or email debt relief attorney Elena Steers, Elena@steerslawfirm.com or go to https://www.steerslawfirm.com.