Planning for Reorganization in a Chapter 11 Bankruptcy

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When a company is unable to remain open for business under the current capacity, bankruptcy is often the option chosen through Chapter 11 to remain functional and keep revenue incoming. While this type of bankruptcy is a reorganization that permits the owner to plan and restructure the company to stay open, most of the assets and other items are sold off when a
Chapter 11 is initiated.

Bankruptcy affects many each year, and those that have a business that are unable to stay in the black face the eventuality of either closing down or a Chapter 11 process. This permits the owner to restructure and reorganize his or her assets and business transactions so that the greatest and most important debts are paid off through liquidation of various items. Then, it is often possible to remain in business and continue with fewer member of staff and employees. This may decrease the interactions and transactions of business clients, relationships and customers, but the company is able to stay afloat.

It is important to note that a Chapter 11 is used to attempt to keep the business open. There are other types of bankruptcy that are used when the owner of the company cannot move forward. A case manager is tasked with helping the company restructure when a legitimate process has commenced. If the owner is attempting to defraud the bankruptcy departments, he or she may face criminal charges and to go jail or prison when discovered. The Chapter 11 may permit the business to plan for the future if it is able to resurface from debt after the procedure has been completed in the few years it takes to get through the debts and reorganization.

The Specifics of Chapter 11

It is important that only one version of bankruptcy is initiated at a time due to the restrictions of filing within 180 from a previous petition. When one process is dismissed, it takes this length of time to file again when the applicant has not appeared before the courts, complied with orders the court has set forth with the bankruptcy procedure or if he or she was voluntarily dismissed when creditors have sought property from the individual. Credit counseling is required with an approved agency before filing Chapter 11. While there are exceptions for emergencies to these processes, debt management is part of the proceedings.

The process starts through a petition to the bankruptcy court in the local area. This may be voluntary and filed by the person in debt, or it could be filed by creditors through requirements that must be satisfied. The Form 1 must be filed with Official Forms through the Judicial Conference of the United States. The courts must be filed with as well with a schedule of assets and liabilities, current income and expenses, contracts, leases and other documents and a statement of financial affairs. When this is an individual, there are other forms that must be completed. The credit counseling becomes part of the process and then the company or person may proceed to the next step.

Planning and Moving through Chapter 11

When bankruptcy appears to be the only way out of the current financial difficulty, but it is possible to keep the business open, the owner need to plan accordingly. This is often accomplished through financial and debt counseling and advice. However, the business owner may start planning by separating the debts that must be paid immediately and those that may wait until revenue has started flowing once again. The planning stage also involves removing as much deadweight and employees that are not necessary to the vital functions of the company as possible. This reorganization may save the business and let the owner continue working on building the entity into a stronger corporation.

When the services of a bankruptcy agency have been engaged, the owner of the company may then fully understand what needs to change within the entity. The structure may alter significantly based on what errors and mistakes already exist. When the agent discovers these problems, he or she will work with the owner to determine the best course of action and how to better permit revenue to build up and flow for the company.

Legal Services with Chapter 11

It is important to hire a lawyer to ensure the rights of the business owner are protected before, during and even after the Chapter 11 process. The legal representative may ensure the paperwork is filled out correctly.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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