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Pros and cons of chapter 11 for your small business

On Behalf of | Dec 30, 2020 | Chapter 11 | 0 comments

Chapter 11 bankruptcy may help if your small New York business has mounting debt, dwindling finances and harassing calls creditors. Partnerships, limited liability companies and sole proprietorships alike may be able to keep their doors open and stay afloat with help from this type of bankruptcy. 

According to the United States Court, Chapter 11 of the bankruptcy code helps keep businesses with unsustainable debt alive through a reorganization process. 

Pros of chapter 11

One of the immediate benefits of filing for chapter 11 is the automatic stay. It is a temporary injunction against creditors. They must stop all collection activity, including lawsuits that are in progress or planned. It provides you, the debtor, the opportunity to arrange for a repayment or reorganization plan, which typically includes reduced interest rates or amounts hold, so you often pay less. Although your creditors prefer payment in full, they also prefer a reorganization plan to liquidation. 

When you communicate in good faith with vendors, suppliers and customers and have a solid plan, you may successfully emerge from bankruptcy with your business intact. 

Cons of chapter 11

Filing chapter 11 has greater expenses, a longer, more complicated process and more fees than chapter 7. As a result, you may decide that filing chapter 7 or 13 meet your needs and budget better. The plan must be well thought out for the court to accept it. Once accepted, your business must seek approval before performing certain activities deemed outside specific parameters. 

If your organization can make meaningful changes and adapt to today’s market conditions, afford current bills and show a profit, it may be a good candidate for a reorganization plan. Learn more about Chapter 11 here.