Chapter 11: Debt Reorganization For Businesses

If you own a small or medium-sized business and are struggling with burdensome business debt, you are no doubt worried about the future of your company. Chapter 7 bankruptcy may not be an appealing option because it requires you to liquidate most or all of the business's assets to pay debt, which would likely mean closing your doors permanently.

Instead, you're looking for a way to reorganize debt into a sustainable repayment plan and make the business profitable again. This is what Chapter 11 bankruptcy can do for you. It allows you to restructure debts, re-evaluate costs and revenue sources, and put your business back on the road to financial health.

The attorneys at Joshi Law Group help Southern California business owners find debt relief through bankruptcy and other means, and we can help you, too.

It All Starts With A Petition And A Plan

The goal of Chapter 11 is to make your business profitable again, and that usually requires some immediate intervention to prevent losing more money. Once you file a bankruptcy petition, the court imposes an automatic stay. This means that most or all creditors are prohibited from pursuing collection actions while the stay is in effect.

The next steps include the proposal of a reorganization plan. Many plans will involve:

  • Renegotiating contracts and leases
  • Assessing debts
  • Prioritizing the parties that must be repaid first and repaid in full
  • The opportunity to discharge some debts (or portions of some debts)

Your reorganization plan will be created with the assistance of a bankruptcy trustee and is subject to court approval. Having these accountability measures may seem restrictive, but they can actually be very helpful. Sometimes, there are several sub-steps that must be taken before proposing a reorganization plan, and Chapter 11 bankruptcy can often afford the appropriate forum for navigating those sub-steps. For example, Chapter 11 could be utilized to clear title, settle preliminary disputes, litigate related claims, force uncooperative creditors to act, sell or refinance assets, or even change ownership.

Are There Disadvantages To Chapter 11?

Every debt relief option comes with trade-offs, and Chapter 11 is no exception. Perhaps the most important thing to know is that Chapter 11 is substantially complex and thus more expensive and more time-consuming than other forms of bankruptcy. This makes sense when considering that it is a plan to revitalize your business - not merely to liquidate it.

Another potential downside to a Chapter 11 filing may be its (mis)perception among shareholders and consumers. As attorneys, we understand that a Chapter 11 filing is really an opportunity to utilize certain legal protections, including the automatic stay and an organized approach to dealing with creditors. In addition, there are abundant examples of public companies that have rebounded after a Chapter 11. Here is our bottom line: If you have a solid business that simply needs a more manageable debt schedule, the protections of a Chapter 11 bankruptcy filing may provide just the foothold your business needs.

Discuss Your Debt Relief Options With A Lawyer In A Free Consultation

Joshi Law Group is located in San Diego and serves clients throughout the area. To take advantage of a free initial consultation, call us at 619-822-7566 or send us an email.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.