Chapter 11 bankruptcy could allow you to shed debt and reorganize

Your business was going well until the pandemic. Since then, you’ve been getting by on loans, savings and the skin of your teeth. If you have done your best to make a fundamentally sound company work but the pandemic has you dead in the water, you might still be able to save your company.

The most favorable option might actually be Chapter 11 bankruptcy.

Chapter 11, which is generally referred to as a “reorganization” bankruptcy, can do just that. It allows you to reorganize your business and shed some types of debt.

Filing for Chapter 11 (or any kind of bankruptcy) puts into place a court order called “the automatic stay.” This court order prevents your creditors from attempting to collect on their debts. Their debts are now in the possession of the bankruptcy court, which will determine how much will be repaid and to whom.

Once you file for Chapter 11, you are considered a “debtor in possession.” That means you are able to continue to operate your company during the proceedings. You are, however, considered a fiduciary, which basically means that you must act in the interest of the company, as opposed to your own.

The next step is to lay out all your assets and obligations and, with the help of the bankruptcy court, come to an arrangement with your creditors.

The U.S. trustee is appointed by the bankruptcy court and is entrusted with monitoring your management of the company. The U.S. trustee also conducts a meeting with you and your creditors in which your creditors may question you under oath. A committee of your largest unsecured creditors may also be created to consult with you on the administration of your case, to investigate your conduct and the operation of the business, and to participate in formulating a plan for debt repayment.

Ultimately, you and your creditors will work out a repayment plan that you can use to repay some or all of your debts while you continue to operate your business. You can propose a reorganization, which could make it easier and more profitable to run your business. You may be allowed to shed some debts, as long as you successfully participate in the reorganization plan.

Having an experienced bankruptcy attorney can make a great deal of difference in your Chapter 11 case. Your attorney will be helping you determine how best to reorganize and negotiate a plan with your creditors. Having experience in business and in the bankruptcy process can facilitate these processes.