If you’re a business owner, you always need to have your eye on the economy and also know your customer base to tailor the goods and services you offer. Sometimes, despite these efforts, your business can begin to suffer financially and fall into excessive debt. There may be some things you can do to get your company back on track, but Chapter 11 bankruptcy may also be a good option. If your business debt is getting out of control and you aren’t sure what to do, let me help.
How Chapter 11 Works
A Chapter 11 isn’t a quick fix for financial woes; you’ll be in the bankruptcy process for six months to two years. During this time, however, you’ll continue to operate your business, mostly as usual, but you’ll be a “debtor in possession.” You’ll remain in control of the daily operation of your business, but the court trustee will need to approve any significant changes, such as expanding or closing the business, selling property or a percentage of the business, taking out a mortgage or other secured loan with the business, or making or breaking a lease. In a sense, the court trustee will have control over new directions your business may (or may not) take.
Part of getting your business back on track will be proposing a business reorganization plan with the court. We’ll file your case, and then within four months (during the “exclusivity period), we’ll submit the plan. A select group of your creditors will form the “creditors’ committee,” and they will review your proposal. It’s their job to ensure the plan is “fair and equitable,” meaning your creditors will receive at least what they would in a Chapter 7. If this does not appear to be the case, they may propose a revised plan or request that the court either convert your case to a Chapter 7 or dismiss it altogether. I’ll help you propose a plan that meets everything the court is looking for so that it’s quickly and easily approved. The first priority is to pay all debts in full and to pay secured creditors the value of their collateral. You must propose your plan in good faith and have the means of completing the plan with the company’s profits. Only then will any equity go to you or your shareholders.
A Big Decision
Before jumping into bankruptcy as a new start for your business, be sure to explore all of your other options. You may be able to re-evaluate how your business operates or change some of the company priorities. There are things you can do to bring in new customers, such as offering discounts or expanding the services you offer. Or perhaps it would be best to downsize the company and only focus on your biggest money makers. If these ideas aren’t realistic, you may decide to close the business and try something else. A Chapter 11 could also be an option that allows you to continue running your business while also honoring your company’s debt. If you’re overwhelmed or uncertain, let’s talk about some ideas for getting you back on your feet.