Chapter 11 Bankruptcy
Chapter 11 Bankruptcy filing refers to the process for business bankruptcy filing outlined in Chapter 11 of the United States Bankruptcy Code. Business bankruptcy filing under Chapter 11 is open to both companies and individuals owning small businesses, although it is most often being utilized by corporate parties. In the height of the recession, a lot of businesses are experiencing financial crashes and are fearing penalization if they cannot pay back their creditors or shareholders. Many companies are considering, or have already acted on, filing bankruptcy.In essence, a Chapter 11 bankruptcy filing can protect the business or company from legal charges that the shareholders may file against the owner. While the government essentially “seizes” the company and its assets, the owner of the corporation still retains a title as a “debtor in possession.” He or she will automatically be considered the trustee of the company and shall be required to carry out instructions that the government shall impose, unless a different trustee gets assigned. A bankruptcy attorney may be hired to help deal with the company’s creditors or existing trustees.
The Process
For a business bankruptcy filing under Chapter 11, the government is in charge of the company’s debt management processes. The debtor in possession, however, is required to submit a proposal for the reorganization of the company’s debt. If that plan does not get approved within a particular time frame, the creditors may also submit their own proposals. Whatever proposal the government accepts gets “set in stone,” so to speak. All parties involved in the company should comply with the steps and measures indicated by the proposal. If the debt restricting methods supplied by the proposal do not work out, the government can reserve the right to liquidate (sell to different buyers for profit) all the company’s assets in order to be able to pay off the creditors.
Advantages
Business bankruptcy filing under Chapter 11 has been deemed as a “lax” government measure by critics, because in a way, it removes the burden of financial management from the company’s owner. It also grants the debtor the privilege of an “automatic stay,” which forces creditors to cease all payment collections, and makes collections post-bankruptcy petition void. While under a Chapter 11 case, a business can still remain under operation, earn income, and even pay off employees if possible.
Disadvantages
Chapter 11 bankruptcy filing entails very high expenses, which could have been kept away to use as payment for creditors. Also, the measures that shall be outlined by the government or the trustee can be very tedious or very binding. Even with the presence of a bankruptcy attorney, creditors may not quickly agree or concede to the proposals that will be presented by the debtor or trustee, and it can prolong the process of rebuilding the business.
Whether you choose to go for a Chapter 11 petition or not, business bankruptcy filing is a very rigorous business. Make sure to get good counsel from an expert bankruptcy attorney, or a dependable credit counselor.