Can a Chapter 11 Bankruptcy Save Your Business?

GM filed for Chapter 11 bankruptcy protection, as did Chrysler, Delta and Goodys. We hear the news daily of companies that are often household names marching into bankruptcy court with their Chapter 11 bankruptcy petition in hand. Obviously, they have been advised that a Chapter 11 bankruptcy will help them save their business.

Will it help save yours?

The only way to really answer that question is to seek the advice of a bankruptcy attorney who is experienced in filing Chapter 11 cases.

A Chapter 11 bankruptcy is known as a “reorganization case.” The primary purpose is to allow the business owner to get breathing room to formulate and implement a restructuring plan for the business. Sometimes the plan includes shutting down divisions or selling non-productive assets. Often the plan is to change the payment structure on significant indebtedness of the company.

Sometimes the case is the only thing that can give the business owner time to think clearly about what really should happen with a business that has become over burdened with debt.

Here are some key things that can happen in a Chapter 11 bankruptcy case:

All collection activity immediately stops. No more calls, no more lawsuits, no more seizures
The business operates in the same manner it did before the case is filed except it will operate without additional credit in most instances
The business can sell or abandon assets that are not critical to the success of the business
A Plan of Reorganization will be filed to restructure the repayment of debts. Sometimes unsecured creditors only get paid a small percentage of what they are owed
Defaults on secured debts can be cured inside the bankruptcy
Time for repayment of secured debts may often be extended

Understand that the Chapter 11 process is fairly complicated. Many attorneys who file consumer bankruptcy cases do not file Chapter 11 cases. Be sure that you are consulting with an attorney who has experience in this arena. Consulting with an attorney early is the process increases the likelihood of a successful reorganization of your business.