The rules and procedure for business bankruptcy has been described in chapter 11. As compared to other chapters of the bankruptcy code, the provisions here are completely different. In chapter 7 bankruptcy, all assets and properties (except the ones that come under exemptions) of the person/business getting bankrupt is liquidated in order to pay off the debts. Nothing of that sort happens when a business goes bankrupt under chapter 11. This chapter allows the debtor to continue with the ownership of the organization and operate it as usual, but while following a re-structured repayment plan with the creditors. However, there are also some basic criteria that need to be fulfilled in order to be eligible to file a petition under chapter 11. Following is a brief rundown on some of the guidelines that you need to follow in this regard.
Is Chapter 11 The Right Choice For You?
When it comes to filing business bankruptcy, the first thing you have to determine is whether chapter 11 is the right choice to bring the finances of your business entity back on track. Depending upon the severity of the debt situation, this form of bankruptcy may or may not prove to be a silver bullet for your dying business. Just restructuring the debts may or may not be sufficient enough to deal with the problem. Your company must be in a position to generate future profits. If not, it will be very difficult for you to payoff your creditors even if the repayment terms are made a little easier.
Hiring A Lawyer
The next important thing is to decide whether you want to handle the procedure yourself or prefer to get help from a qualified lawyer who specializes in handling bankruptcy cases. Considering the very fact that the business bankruptcy laws are very complex, it is often advisable to hire an attorney to help you with the procedure. A good legal expert will also be able to help you decide if filing such a petition is the right choice.
Reorganizing The Debts
The laws provide you an option to make a restructured repayment proposal on your own. The court will review the same and then ask the creditors if they accept your proposal. The creditors have the legal right to accept or reject your proposal. In most cases, if the plan you are proposing is based on reasonable grounds, the creditors accept the same but after making some small changes. If you are unable to reach a mutual agreement with the creditors, the court may reorganize the debt, which must be followed by you and the creditors. You will need to submit relevant documents to the court as well as to your creditors while a new repayment plan is in the process. The documents may include future forecasts of profits, records of outstanding credit, balance sheets, and others. As per business bankruptcy laws, you must submit your proposal within 4 months from the date of filing your petition. If you miss this deadline, your creditors will be asked to submit their own plan. A trustee is appointed by the court to monitor the process.
It is very important to note that if you continue making defaults with the repayment, the court may convert your chapter 11 bankruptcy into chapter 7. Business bankruptcy under chapter 7 requires complete liquidation of your business assets and properties; you will not be able to continue with your business operations.