Wayne County business owners are no doubt aware that Chapter 11 bankruptcy is an option for large corporations that run into financial difficulty. It seems that companies seeking Chapter 11 protection are in the news all the time. But, can small business owners take advantage of this kind of business bankruptcy too? The answer is, "yes."
First, what is Chapter 11 bankruptcy? Chapter 11 allows businesses to reorganize, while being protected from creditors.
After the paperwork is filed, the bankruptcy court issues an automatic stay that prevents creditors from pursuing collection activities against the business. The goal with Chapter 11 is to keep the business running. The company is allowed to continue operations.
Under Chapter 11 business reorganization, businesses are required to draw up a plan to stay in business and negotiate repayments with creditors. Why would creditors be interested in business debt negotiations? Usually, creditors get more compensation with a Chapter 11 plan than with a liquidation bankruptcy, under Chapter 7 of the bankruptcy code.
Small business debtors, defined as individuals engaged in business activities with total debts equal or less than $2.19 million, are allowed to file for bankruptcy under Chapter 11. The court requires small business debtors to submit the following items: financial statements, a statement showing cash flow, a statement of operations and a copy of the company's most recent federal income tax return. The court will appoint a bankruptcy trustee to oversee the Chapter 11 bankruptcy of a small business debtor.
A Chapter 11 bankruptcy can be a complex undertaking. A bankruptcy lawyer can be a valuable resource for businesses seeking reorganization.
Source: FindLaw.com, "Chapter 11 Bankruptcy," accessed on Nov. 21, 2015