Chapter 11 Bankruptcy for Businesses Q&A

Bankruptcy is not a bad word. When you need it, the federal courts are there to help you get out of a jam. When you’re struggling to stay afloat and don’t have enough money to pay your creditors, but do have a plan to pay your debts, you can file a Chapter 11 bankruptcy. This type of bankruptcy is a reorganization as opposed to the liquidation of a Chapter 7, and means that your business will stay alive – albeit on life support and under scrutiny from creditors and the court.

Q: What types of businesses can use Chapter 11?

A: Any business can file for a Chapter 11, whether it’s a sole proprietorship, partnership, LLC, or corporation.

Q: Will I still be the owner of my business?

A: Most of the time, yes. This is known as debtor in possession, and it means that even though your creditors are still out there, you can still operate your business – subject to the oversight of your creditors and the court.

Q: What if someone sues me?

A:  All parties who file a bankruptcy are protected by a function of the filing called an automatic stay. This function prevents any attempts at collection or litigation while the bankruptcy proceeds.

Q: What about litigation or collection that is in process before filing for chapter 11?

A: Those actions are also put on hold until the issues can be resolved through the bankruptcy proceeding.

Q: What about financing? Will anyone lend to me?

A: Yes, there is a special form of financing available to distressed businesses called debtor in possession financing. This enables a business to keep going, and becomes the first payment priority over all other debts.

Q: Can my creditors take my business from me?

A: If the business is insolvent, its debts exceed assets on hand, and it can’t pay the bills as they come due, there is the possibility that the court could terminate the owner’s rights and ownership of the reorganized company be given to the company’s creditors. This is why it’s important to consult with an experienced attorney to develop a realistic reorganization plan.

Q: How much is this going to cost?

A: Chapter 11 is expensive because of the complexity of the case. The fee to file the case is $1,167 plus a $550 administrative fee. You really do not want to mess around with this, as the court can dismiss your case for not paying the fee.

That’s just the tip of the iceberg when it comes to filing for a Chapter 11 bankruptcy, and this is not a DIY job. If you want to come out of bankruptcy and get back to normal, you need someone on your side who’s navigated these types of cases before. You’re going to need a real plan for restructuring and reorganizing, not guesstimates and high hopes. At Van Horn Law Group, we have the staff, the experience, and the understanding that you need.