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How does Chapter 11 bankruptcy help businesses?

Discussions and news articles about too much debt often focus on individual consumers and their bankruptcy options. However, many businesses also deal with overwhelming levels of debt that make it nearly impossible to continue regular operations. What some California business owners may not realize is that, like individual consumers, they can also address their debt through bankruptcy. Chapter 11 bankruptcy can help businesses reorganize to promote their future profitability.

When it comes to Chapter 11, a business or its creditors can file the Chapter 11 bankruptcy petition. Like with personal bankruptcy, simply filing for bankruptcy will put an automatic stay into place. This stops all creditors from attempting to collect on debts. This is not necessarily a permanent action, and the court can issue a modification to the stay that would allow some collection efforts to move forward.

The business can continue operations without interruption during the bankruptcy process. However, during this time it must create a repayment plan, which when paid off will be less than the original amount owed. Some creditors have first priority when it comes to repayment, such as both federal and state tax agencies. This repayment plan will also be accompanied by reorganization efforts, including renegotiating contracts and leases.

The ultimate goal of Chapter 11 bankruptcy is for a business to become profitable at the end of the process. Understanding this might make pursuing the process easier for business owners who are struggling with too much debt, but who are also unsure of how the bankruptcy process works. Additionally, pursuing this option may also help demonstrate to California consumers a business's commitment to excellence.

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