8 Major Advantages of Chapter 11 Bankruptcy for Businesses

As we’ve often talked about in our blogs, there is an unhealthy stigma that follows filing bankruptcy in our society. It is viewed as a mark of failure, when in fact, particularly for businesses, filing bankruptcy is merely another tool in your financial tool belt to help you achieve your goals.

In this blog, we will discuss eight major advantages for businesses inherent in Chapter 11 bankruptcy, which entails restructuring and reorganizing an insolvent business in order to satisfy debts while still retaining possession of the business in its current form.

If you want to learn more about your business bankruptcy options, further bankruptcy information, or discuss your specific situation, please contact the business and bankruptcy law firm of Maxwell Dunn today.  

The Automatic Stay

By far, the most important advantage of Chapter 11 bankruptcy for businesses is the automatic stay. As soon as one files the petition for bankruptcy, the courts will place an injunction on all collections and litigation against your company. Creditors and other lenders who were previously exerting tremendous pressure on your to recover the debts must cease all actions against you. The automatic stay is the first step to reorganization.

Negotiate with creditors and restructure debts

Chapter 11 bankruptcy gives you the opportunity to negotiate terms with your creditors and restructure your debts in a manner which is more reasonable for you to fulfill payment. You may be able to renegotiate interest rates or payment plans, and even reach settlements to pay a percentage of your debt. Creditors would rather get something as opposed to nothing.

Continue operating your business

Chapter 11 bankruptcy allows you to maintain control of your business and continue operations as usual. Thus, you will not lose your company, you can maintain your reputation and relationships you’ve built, and you can keep serving customers so that when you come out on the other side of your bankruptcy, you can emerge stronger than ever, rather than having to start from scratch.

Temporarily defer pre-bankruptcy financial obligations

By filing bankruptcy, you may be able to defer some of your financial obligations that were established prior to your petition. For example, you may be able to defer your rent until you are in a better position to pay it.

Assume or reject executory contracts

You may pick and choose which executory contracts that were established prior to the filing of your bankruptcy petition to keep or reject. Thus, you can jettison your unprofitable contracts and keep those that are important to your business. For example, you could keep your intellectual property licences, but reject a lease for an unprofitable property that you otherwise would have been locked into.

Recover involuntary transfers

By virtue of your insolvency and debt collection tactics, creditors may have taken action against you in the form of bank levies, wage garnishments, liens, and repossessions. Chapter 11 bankruptcy protection may allow you to recover what you’ve lost through these involuntary transfers.

This blog is just a brief overview of some of the benefits of Chapter 11 bankruptcy. For more information on how bankruptcy can help your struggling business, please contact the business and bankruptcy law office of Maxwell Dunn and let’s discuss your options.