Can Chapter 11 Bankruptcy Help You Get Back on Track?

What Is Chapter 11?

Chapter 11 bankruptcy is often called reorganization bankruptcy. Although usually filed by businesses, it is open to individuals as well. Chapter 11 allows the debtor to make a plan to improve their business's finances and operational system to get it back on solid ground. It also provides some debt relief assistance to help achieve that.

For instance, if your business had to take on extra loans during pandemic shutdowns, could it recover its finances if those old loans were to have lower payments? Chapter 11 gives you room to do that if it has a high chance of working. Chapter 11 benefits the debtor by assisting them to keep their business going. But it also helps creditors who won't face full discharge of their debts.

Who Makes the Reorganization Plan?

Who makes the plan for how your business will reorganize? Generally, the debtor has four months to present a modification plan to creditors. However, creditors who stand to lose any money from the new plan must agree to it. So the plan needs to be viable and meet the interests of both the debtor business and its creditors. In some cases, creditors may propose a different plan after a waiting period.

Can You Control Your Own Business?

One fairly unique element of Chapter 11 is that the debtor usually can continue to control their business. In many other bankruptcy cases, the trustee actually controls the business stake of the debtor. However, with Chapter 11, the business owners or managers need court approval to make certain transactions - such as selling assets, making substantial changes in operation, signing contracts, or taking on new debt.

What Debt Relief Will You Get?

Debt relief from Chapter 11 comes in three main forms. First, you get the automatic stay against collections efforts that is part of all bankruptcy cases. This protects your business assets and eliminates harassment while you recover.

Second, you get the opportunity to take control of your finances in a way that you wouldn't normally be able to. You can realistically consider things like reduced payments, eliminating problematic sectors of the business, freedom from some debts, and even drastic management or personnel changes.

Finally, Chapter 11 (like both Chapter 7 and Chapter 13) does usually include at least some permanent debt discharge. Depending on the reorganization plan, this discharge may come at the beginning of the plan or at the end of the bankruptcy period.

When Might a Different Option Be Better?

Of course, one solution does not fit the needs of all businesses. Chapter 11 can only work if the business can be salvaged through changes in how it operates. This isn't always possible, and business owners should honestly assess whether such a plan will really work and can be sold to creditors.



In addition, small business owners with a lot personally at stake do well to consider filing personal bankruptcy through Chapter 7 or Chapter 13 instead. Personal debt relief could remove the worst of the business's problems while not affecting its operations the way Chapter 11 will.

Where Should You Start?

If you think Chapter 11 could help you, where should you start? Begin by learning more about this complicated bankruptcy option. Charles J. Schneider, P.C., can help. For more than 35 years, we have aided Michigan businesses and individuals in getting the debt relief they need. Call today to schedule an appointment.