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Understanding Chapter 11 Bankruptcy

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Certain businesses are facing financial challenges, but do not want to completely start over financially. In these cases, a Chapter 11 bankruptcy may be the best option, as it will allow a business to restructure its debt and “reorganize” its finances to rehabilitate its business. In these cases, a business will typically not actually face a significant reduction of debt, however, it will allow a company some financial breathing room, and allow a business to remain open.

Chapter 11 Bankruptcy

A Chapter 11 bankruptcy is handled in a federal bankruptcy court and is typically voluntary in nature. There are some more rare instances of creditors of a business banding together to initiate an involuntary Chapter 11 bankruptcy against a business, however, this is uncommon. Typically a company will file their Chapter 11 bankruptcy case in the same jurisdiction as their business location.

During the course of a Chapter 11 bankruptcy, a business will be allowed to continue business operations. However, it is important to note that a federal bankruptcy court will have a final say regarding any major financial decisions of the company such as the sale of any assets, purchase of any mortgages, leases, decisions regarding the expansion or reduction of the business, the establishment of any additional contracts or debts, company fees, or any other type of financial expenses a company may have.

As well as the federal bankruptcy court, the creditors of the business will also have the ability to state their opinions regarding any major financial decisions of the company during the bankruptcy process.

Reorganization  

Chapter 11 bankruptcies allow a business to restructure and reorganize their debt in such a way that they may have more time to repay their creditors. Creditors are allowed to vote on the proposal offered by the business regarding the repayment of debts and do have the option of rejecting it if it seems unfair. Creditors may propose their own restructuring plans regarding a company’s debts. However, if a business is able to finally receive a creditor’s approval regarding their reorganization it can benefit them in several ways, including the following:

  • A business may extend payment plans to give them more time to pay creditors.
  • A business is able to stay open to attempt to receive revenue to pay creditors.
  • A business may either surrender or keep the secured property of a creditor.
  • A business may be able to terminate a lease or renegotiate a lease.
  • A business may be able to renegotiate or terminate union contracts.
  • A business may be able to postpone a foreclosure process to either sell or develop their real estate.

Contact an Experienced Bankruptcy Attorney

If you are a business facing financial challenges, you have several options available to you, one of which is filing for Chapter 11 bankruptcy. The process can be legally challenging and complex. The Jupiter bankruptcy attorneys at the office of Julianne Frank, Esq. can help you examine your business’ current financial situation and help you determine your next steps. Call our legal team at 561-320-7971 for a free consultation today.

Resource:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics

https://www.juliannefranklaw.com/what-to-expect-at-a-341-meeting-of-the-creditors/

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