The sluggish economy and struggling markets have placed increasing pressure on businesses. It seems as if there are notices of “going out of business” at every turn. Businesses of all sizes are experiencing a drop in profits. Many more are struggling to manage their cash flow, pay their vendors and gain access to capital to improve their finances. More businesses are looking to bankruptcy from protection against creditors and efforts to stay in business in these tough times. If sought correctly, bankruptcy can be a viable option when looking to turn a business around.
Chapter 11 Bankruptcy
Businesses file for Chapter 11 bankruptcy protection, which allows the company to restructure its debts and remain in operation. Typically, the business will acquire a loan and give lenders first priority to access of any earnings. The creditors are often repaid through a negotiated repayment plan, but are unable to persist in collection efforts prohibited by the issuance of an automatic stay. However, if a business debts’ exceed its assets, the business owner’s rights are terminated and the creditors can end up with ownership of the company and any future assets.
Any business contemplating bankruptcy should use their current financial situation as a guide, not what it once was or could be in the future. Companies should also consider the amount of debt in relation to assets to determine their potential for assistance through bankruptcy. Many times, companies are looking to save the business operation and eliminate their debts. Not all Chapter 11 bankruptcy filings result in the development of a repayment plan in order to satisfy creditors; others will result in having the assets sold to creditors and the business being liquidated. Depending on the financial standing of the company, bankruptcy proceedings can vary for businesses. Business owners should contact an experienced bankruptcy attorney to help evaluate their unique financial situation and determine the best option for their business