In times of great financial distress, Chapter 11 bankruptcy can often be the ray of light, illuminating the pathway for a business to overcome the difficulties and regain profitability while retaining a significant portion of its original value.
While the process can be intimidating and difficult to navigate without the help of an experienced Chapter 11 bankruptcy lawyer in San Diego, it is also the opportunity to not only address the debt – but to continue operating and potentially emerge stronger than before!
Why is Chapter 11 good?
The reason why Chapter 11 is a superior option for businesses lies in its internal mechanisms, many of which are designed to provide a structured, supportive, and protected environment conducive to rehabilitation and reorganization efforts. Let’s explore some of the most notable ones.
Reorganization – not liquidation
The major advantage of Chapter 11 over other chapters is that it does not entail liquidation of assets to repay the creditors, as is the case with Ch 7. Instead, it allows the business to restructure both its debt and operations, effectively giving it a chance to develop a solid plan to return to profitability.
Continuity of operations
Arguably the biggest benefit of Ch 11 is that it does not stop the business in its tracks – quite the contrary! The company can continue to operate, generate revenue, maintain relationships with clients and partners, and retain its employees, albeit under the watchful eye of the court.
Automatic stay
The moment the business files for Ch 11 bankruptcy, an automatic stay goes into effect. This is effectively a flashing red-light-no-go sign the size of a Cabrillo National Monument that instantly puts a stop to all collection efforts, giving the company much-needed breathing room to reorganize without constant pressure from creditors.
Repayment flexibility
The great thing about Ch 11 reorganization plans is that they allow for a certain degree of flexibility. The company has some freedom to propose to repay creditors over a certain period of time, renegotiate terms, or even discard certain debts (or portions of thereof).
Un-Encumbrance potential
Chapter 11 allows for the rejection of executory contracts and leases that are no longer beneficial to the company, which can help reduce operating costs and eliminate a portion of burdensome financial obligations.
DIP Financing
The Debtor-In-Possession (DIP) financing is a unique option that can be obtained during the Chapter 11 proceedings. In essence, it allows the company to take on a new loan, thereby receiving the necessary financing to continue operating during the reorganization process.
Management retention
In addition to the much-needed financial infusion, the DIP option also allows the existing management to retain control over the company. As such, Ch 11 effectively eliminates one of the biggest stressors and obstacles associated with bankruptcy – losing the company.
Improved creditor negotiation
In many cases, creditors would much rather agree to the terms outlined in a Chapter 11 plan than its alternatives which could potentially result in lower recovery rates. Needless to say, this is excellent for the debtor, as it simultaneously gives them more negotiating power, speeds up the process, and makes reaching the agreement easier.
Who’s the leading Chapter 11 bankruptcy lawyer near me in San Diego?
Long-term resident specialists for all things bankruptcy, the Law Offices of Mark L. Miller are here to offer you mindful and strategic guidance throughout the Chapter 11 process. With extensive experience in the San Diego legal environs, intimate knowledge of the subject matter, and plans personalized to the unique needs of your company, we are the top choice of partner to lead you toward regaining financial independence. Reach out to us today for your free initial consultation!