How Chapter 11 Bankruptcy Works

Perhaps the only thing more stressful than watching your efforts to keep your business afloat prove fruitless is the prospect of having to go to court in an attempt to save it. However, Chapter 11 bankruptcy is a valuable tool for business owners in need of some help managing extensive debts. The ins and outs of the process can seem complex and confusing, but Chapter 11 bankruptcy can provide your company with the opportunity to reorganize and restructure a broken financial plan.

Voluntary versus Involuntary Petition

The bankruptcy process begins with the filing of a petition with the local court where the business resides. Chapter 11 bankruptcy petitions take two main forms: voluntary, when the business in debt files its own petition, and involuntary, when one or more creditors see that their investment is failing and want to minimize the damages. No matter which of these occurs, the process is largely the same: the debtor must file with the court a full summary of the company’s financial status and affairs for review by the court.

Creditor Input

Because Chapter 11 bankruptcy is designed largely for businesses, creditors, shareholders, and other interested parties have sway over the way that the court handles their investments. The bankruptcy court takes into account the wishes of these parties when they formulate the debtor’s reorganization plan.

The Business Operations

Despite the fact that the company’s financial future hangs in the balance, business operations can continue as they did before the filing of a bankruptcy petition. The company remains a “debtor in possession” and thus can remain open and operational. This ability to earn income during the court proceedings, while subject to motions from the court and the appointment of a trustee if deemed necessary, is often critical to the survival of companies after the conclusion of the bankruptcy process.

Bankruptcy Confirmation

The approval of a final plan, called a “confirmation,” must meet numerous requirements. It must be:

  • Feasible. The business must be able to demonstrate the capacity to raise enough revenue over the proposed amount of time to pay the expenses.
  • In the best interest of creditors. The court must ensure that the plan does not punish the company too harshly or, on the other hand, directly favor or disadvantage certain creditors. The rule of thumb for the “best interest” rule is that creditors must receive the equivalent of the proceedings of Chapter 7 liquidation. The benefit in this case, therefore, is that a company has the opportunity to pay back its creditors without sacrificing its financial foundation.
  • Fair ruling. The plan must ensure the payment of creditors at least the value of their collateral and holds the debtor under strict payment plans as part of their reorganization.

Having an experienced attorney well-versed in the complexities of Chapter 11 bankruptcy law will help steer you and your business through the choppy waters of this process and help give your company the best chance at reorganizing successfully.

Consult with a Fayetteville Chapter 11 Bankruptcy Attorney

As difficult as it may be to face your business’ piling debts, filing for bankruptcy can be an invaluable tool in order to get back control of your financial future. If you are considering Chapter 11 bankruptcy, consider calling the offices of the Fayetteville Chapter 11 bankruptcy attorneys at Bradford Law Offices, PLLC. Our attorneys can help you navigate the intricacies of bankruptcy law and consult you on the best course of action for your company. To speak with someone from our team about your case, please call our offices at (919) 758-8879 today.