Chapter 11 bankruptcy is the reorganization form of bankruptcy designed to give struggling businesses a way to get control of their spiraling debt and get back on their financial feet, without abruptly closing the doors and letting people go. The idea is that the bankruptcy trustee and courts will be able to provide some guidance as the company tries to regroup, and also provide protection against strong-arm tactics from creditors. Yet, many businesses file Chapter 11, only to later close their doors forever. Is this the end-all for bankruptcy and businesses, or can yours survive?
The truth is that there is no law that says filing Chapter 11 bankruptcy means a death sentence for your company. That said, it can be difficult to recover, but before you decide you should understand what goes on in a Chapter 11 case.
When your business files Chapter 11, the courts can remove some of your debts to give you a little financial breathing room. Union contracts, unsecured loans, and long-term lease agreements are some of the types of debts that can be removed. Then, the business owner must devise a plan through which remaining debts will be paid. If this is not possible, then the creditors can have a hand in planning the business’s repayment. In this instance, the business owner can lose control over the way in which the company is run.
Because of this, it is no wonder that some businesses do not survive. If it comes to the point that the creditors do not agree to your repayment plan and they earn the right to take over your business operations in order to get paid, they are not going to have your company’s best interests in mind. So, businesses may not be able to survive the process.
Yet, sometimes the creditors are happy with the business owner’s plan for repaying what is owed. They readily agree to the repayment plan, and the debts the courts waive give the business owner enough room to breathe that they can, in fact, repay their other debts. Having the chance to restructure and reorganize is sometimes the only boost a business owner needs to succeed.
Businesses who survive Chapter 11 bankruptcy often have a strong legal team on their side, as well as a strong team of financial advisors. While this does not have to be the case to do well in bankruptcy court, the more advice your business has, the better off you will likely be.
Another key to surviving Chapter 11 is your creditors. If your creditors are willing to be flexible with you and believe your company can survive, you have good chances. If, on the other hand, your creditors feel that your business is not a valuable asset to their company, they are likely going to be less flexible in helping you design a repayment plan.
No one can predict the future of your business, but these two keys can help you succeed. Remember to do all of your homework before you enter into the bankruptcy process, and your company can, in fact, come out ahead.
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