Bankruptcy is a word that strikes fear into the hearts of business owners everywhere. In the vast majority of cases, it is viewed exclusively as a last resort. A sign that the business has failed and, as such, should stop operating permanently. While there certainly are some such instances, shutting the door is by no means the only option. Enter Chapter 11 bankruptcy.
This form of legal action allows a business to continue operating while simultaneously working on restructuring its debt and repaying creditors. It is a complex and, often, convoluted process, but with the right guidance from a dedicated Chapter 11 bankruptcy lawyer from San Diego, it can give your business a chance to rise above the tribulations and become even more successful. Here’s some advice that will help keep your spirits up, and make things easier.
What should I know about Chapter 11?
Before you file bankruptcy under this chapter, there are several things you need to know:
Bankruptcy is NOT the end of a business
We already stated this, but it is such a crucial point that we’ll reiterate it: Bankruptcy doesn’t necessarily mean the end of your business. Unlike Chapter 7 bankruptcy, which requires the liquidation of the business’s assets, Chapter 11 allows the business to restructure its debt and continue operating. This means that the business can emerge from bankruptcy as a leaner, yet more profitable enterprise.
Chapter 11 allows for the continuation of operations
The major advantage of Chapter 11 bankruptcy is that the business can continue to operate during the process. Granted, there are certain restrictions, such as the need for court approval for major decisions, but your business can continue to generate income and serve its customers. This can be especially important for businesses that have a loyal customer base or that operate in a niche market.
You’ll be safe from creditor harassment
Arguably the biggest advantage of Chapter 11 is that when you file for it, an automatic stay goes into effect. This means that creditors are not allowed to take any legal action against the debtor without explicit permission from the court. This gives you enough time to reorganize your operations and pay off the debts without creditors breathing over your shoulder.
You will need court approval when making major decisions
Whether it is selling assets, entering into contracts, or borrowing money, you will need court approval during Chapter 11. The court will appoint a trustee who will oversee the process and ensure that the business is operating in the best interest of all parties involved.
Under Chapter 11, you’re not forced into bankruptcy
Chapter 11 bankruptcy can be filed voluntarily (by the business or individual), rather than being forced into it by creditors. This means that you, as the debtor, can take the reins of the process and work with the creditors to restructure the debt and become profitable again.
Mind the reorganization plan
The debtor isn’t fully in charge of creating the reorganization plan in Chapter 11 bankruptcy. Rather, the debtor submits a disclosure statement that provides information about their financial situation, operations, and proposed reorganization plan. The plan is then created through negotiation with creditors and must be approved by the court before it goes into effect.
Not all creditors are created equal
In Chapter 11, creditors are given different levels of priority. Secured creditors (e.g. those with liens on the business’s property) are given priority over unsecured ones. This means that they’ll be paid first from the bankruptcy estate before any payments are made to the rest of them.
Chapter 11 is not a cash flow guarantee
While Chapter 11 bankruptcy provides an opportunity for the business to restructure its debt and become profitable again, it does not guarantee cash flow. Your business will still need to generate income to pay off the creditors and continue operating.
Chapter 11 bankruptcy can take a while
Filing for Chapter 11 bankruptcy is a complex process that can take months or even years to complete. This is not necessarily a bad thing, as you’ll have a lot of time to develop a plan that will allow your business to emerge from bankruptcy stronger. Just remember to be patient and work closely with your lawyers to avoid common mistakes, and the results will surely show.
Where can I find a reliable Chapter 11 bankruptcy lawyer in San Diego?
If you want a dedicated team that will guide you and have your back throughout the Chapter 11 process, Bankruptcy Law Offices of Mark. L. Miller should be your #1 choice. With extensive knowledge of California state laws and decades of experience navigating legal waters, we’re easily one of the leading bankruptcy law firms from Otay Mesa to San Pasqual Valley and the entirety of San Diego. Contact us today and ensure you have a legal team that will fight for your ultimate success.