There are several different types of bankruptcy available to both people and businesses. Those running successful businesses sometimes encounter temporary challenges. They may not want to pursue a Chapter 7 bankruptcy that could force the liquidation of company assets. However, they need relief from debt collection efforts or support while trying to stabilize company finances.
Chapter 11 bankruptcy can be an excellent option for business owners trying to keep their companies afloat after a sudden downturn in sales or other operational disruptions. Chapter 11 bankruptcy involves restructuring company finances and reworking financial obligations.
There are several benefits associated with Chapter 11 filings that make them a viable option for many business owners. What can make a Chapter 11 bankruptcy beneficial for a business owner?
1. Maintaining control over the company
In other forms of bankruptcy, it is standard practice for the court to appoint a trustee. The trustee has to liquidate assets in Chapter 7 filings and oversees repayment plans. In some cases, trustees may take control over company operations.
That could be a fatal move for a struggling business. Chapter 11 bankruptcy allows the owner to continue running the company. Their experience and relationships can keep the company functional despite the temporary financial challenges.
2. Restructuring company finances
When a business has more debt than revenue, collection efforts can put the company’s assets at risk. In a Chapter 11 bankruptcy, the organization can rework its finances. The company may be able to streamline operations by closing down certain facilities.
It may also be possible to renegotiate the terms of certain financial obligations. Lenders and creditors are often more willing to compromise when the alternative is the possibility of discharge during bankruptcy.
3. Securing an automatic stay
Sometimes, business owners plan bankruptcy carefully for weeks before taking action. Other times, they need immediate relief. If a creditor initiates a lawsuit or if the company is at risk of losing key assets, bankruptcy can help the organization remain afloat until it improves its circumstances.
The courts provide an automatic stay when the business owner files for Chapter 11 bankruptcy. Collection efforts, including repossession attempts or pending litigation, typically have to halt until the courts finalize the bankruptcy filing or dismiss it.
If a Chapter 11 bankruptcy is successful, the organization may be able to retain key resources, eliminate certain debts and continue operating despite the short-term financial challenges. Securing support when contemplating a business bankruptcy can help business owners choose the best option available to them and meet all of the complex requirements involved in business bankruptcy proceedings.