Can My Small Business File for Chapter 11 Bankruptcy?

Debt Harassment Lawyer

Filing for Chapter 11 bankruptcy protection allows a business time to restructure their organization, assets, and debts. It is the most complicated of all types of bankruptcy cases and the proceedings are the most costly.

Chapter 11 bankruptcy is generally the option larger corporations use to restructure and remain in business. However, depending on the amount of debt and assets, partnerships, LLCs and in a few cases individuals who possess a larger amount of debt and do not qualify for Chapter 7 or 13 may be able to file for Chapter 11 bankruptcy.

Filing for Chapter 11 bankruptcy is extremely complex and requires the assistance of an attorney experienced in filing the required forms and the demands of the bankruptcy court. Attorneys have successfully assisted businesses through the bankruptcy process.

Can a Business Filing Chapter 11 Remain in Operation?

In many cases, the company can continue to operate as usual. If the case involves dishonesty, gross incompetence, or fraud, the court will appoint a trustee to run the company during the bankruptcy period.

There are certain decisions a business cannot make without the court’s permission, including:

  • Expanding or stopping the operation of the business
  • Selling assets, such as real property, except for inventory used during the normal course of business operations
  • Beginning or Ending a rental agreement
  • Obtaining a loan that begins once the bankruptcy is complete, such as a mortgage or any other secured financing
  • Entering new contracts with unions or vendors

Chapter 11 Reorganizing

In a Chapter 11 bankruptcy, the courts allow the business or individual who filed bankruptcy to submit the first proposal for reorganization. These plans may include reorganizing the company’s debts as well as possible downsizing to lower expenses. If the court sees this as a viable reorganization plan, it will be accepted and the bankruptcy process proceeds.

In some cases, the creditors may join together and force the company to file an involuntary Chapter 11 bankruptcy.

How Long Does a Chapter 11 Bankruptcy Last?

During bankruptcy proceedings, a business can maintain operations. There is no set limit as to how long the Chapter 11 case will last — some can be finished in just a few months; however, normally, cases take from six months to almost two years before the Chapter 11 bankruptcy case is resolved.

There is no trustee in a Chapter 11 filing. The filer runs the business as usual and is known as the ‘debtor in possession’.

Chapter 11 for Small Businesses

Is it not common for a small business to take the Chapter 11 bankruptcy options because of the costs, risk, complexity, and time involved. However, Chapter 11 is the only option for a smaller business looking to continue operations while undergoing the restructuring process if the business is owned by an LLC, corporation, or partnership.

If the debtor owes too much money to qualify for Chapter 13 bankruptcy, Chapter 11 may be the only option.

Contact an Attorney

Contact an attorney if you are considering using the reorganization advantages of filing a Chapter 11 bankruptcy.

Source: Debt Harassment Lawyer Tampa, FL, Law Office of Michael A. Ziegler, P.L.

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