Small Business Chapter 11 Bankruptcy

Small Business Chapter 11 Bankruptcy

Filing a Chapter 11 Bankruptcy in Pensacola

Chapter 11 bankruptcy is often referred to as “reorganization.” It allows debtors to reorganize their finances in order to be able to pay off debts more easily while also having control of their assets.

There are exceptions to the rules that allow debtors to stay in charge of their estate. If there have been issues of fraud or mismanagement on the part of the debtor, the debtor may no longer be allowed to oversee the business.

If you or your business is in dire financial distress – even if you are making money from the business – then you may consider filing Chapter 11 bankruptcy. An individual who cannot file for Chapter 13 bankruptcy because of a higher debt ceiling can file for Chapter 11.

Basics of Chapter 11 Bankruptcy

When you successfully file a Chapter 11 you are awarded an automatic stay forbidding your creditors from further debt collection actions. An automatic stay forbids your creditor from foreclosing on your property, filing liens against the property, filing a lawsuit against you or any further collection efforts.

Filing a reorganization plan is basically the exclusive right of the debtor. This should be done within 120 days even though a period of 180 days is allowed for submitting a plan of reorganization. An extension can be requested, but if the period lapses without a plea for extension, then other parties, including creditors, can take control of the reorganization plan.

If a creditor is able to prove that the debtor is incapable of executing the bankruptcy on the grounds of fraud, mismanagement, or unfair negotiation, the debtor’s rights can be terminated. This will allow creditors to bid for a competing plan.

Chapter 11 bankruptcy allows for the business to continue paying the owner salary if he/she was being paid prior t

o the bankruptcy filing. The salary is to be determined by the court based on the previous amount paid to the owner. But if the business is not able to pay its bills or generate enough money for payment of its debts after the filing, the owner may have to forfeit the salary.


Liquidation in Chapter 11 Bankruptcy

In some instances, Chapter 11 bankruptcy may lead to assets liquidation rather than a reorganization of finances. If the business has assets that could generate enough money to pay the creditors when sold and the value of the assets is more than expected future earnings, “liquidation” comes into play.

The business owner controls the liquidation process on the grounds that he or she has more knowledge about the business market. Aliquidation trust is set aside for saving the proceeds of the sales. From this trust, the proceeds are shared among the creditors. It is possible to convert the Chapter 11 liquidation to Chapter 7.


Chapter 11 Bankruptcy for Individuals

Individuals who want to reorganize their finances through bankruptcy and still stay in control, or those whose debts exceed the cap for Chapter 13, can opt for Chapter 11.

For both businesses and individuals Chapter 11 bankruptcy is more expensive and complex than filing for Chapter 13. Therefore, you should consider alternative avenues to resolve your debts before considering Chapter 11.