A company may at some point find itself on the verge of collapsing as a result of its overwhelming debts. Such a firm tends to leave the impression of complete failure, and it is evident for people to assume that it is indeed dead. If a company happens to reach this stage, its owner may have no way out but to file for bankruptcy.
Bankruptcy has been recognized in many countries such as America, the United Kingdom, Germany, Italy, Singapore, and many others. According to American law, filing for chapter 11bankruptcy allows the managers that brought their companies into insolvency to continue running the business as they find ways of getting the stores back on fit. However, chapter 11 bankruptcy filing process is usually complicated. So, hiring a business debt reduction specialist may speed up the process and increase the chances of your bankruptcy filing emerging victorious.
Chapter 11 Bankruptcy Meaning
A Chapter 11 bankruptcy refers to a motion involving the reorganization of a business’s debt and assets. It allows a company to continue with its daily operations as it works on its debt so that it can get back on track again.
How Chapter 11 Bankruptcy Works
During the proceedings of Chapter 11, a company plans on restructuring its debt obligation with the help of the court as it remains afloat. It means that a company that is in the process of filing a Chapter 11 bankruptcy may continue with its normal business operations.
However, where a case of dishonesty, fraud, or incompetency is involved, a court usually appoints a trustee who steps in to manage the business’ daily operations during the bankruptcy proceedings. In this case, the trustee must first seek the permission of the court before making any decision. Some of these decisions may include selling off assets, signing or terminating a rental contract, expanding, or stopping any business operations, among other things.
When it comes to Chapter 11 bankruptcy, the business or individual filing for bankruptcy must first have a restructuring proposal plan in place. The procedure may include working on downsizing the business operations to cut down on expenses. It may also involve debt renegotiations or liquidating the entire assets to pay off the debts. Depending on the path a company chooses and seems fair and feasible, then the courts will accept, and the process begins.
Chapter 11 Bankruptcy Filing Eligibility
Although businesses can restructure through bankruptcy, it doesn’t mean that all should opt for this option. It is worth noting that Chapter 11 bankruptcy is not just for everyone and does not offer a permanent solution for debt payment. If a company liquidation value happens to be higher than its revenue potential, then shutting its entire operations remains the only best option.
One major determinant for a company not shutting down its operations is whether it has an excellent reason to continue existing. In most cases, businesses that are eligible for Chapter 11 bankruptcy filing are those that are considered valuable. Valuable in the sense that if they are shut down, there will be mass loss of jobs where the employees are laid off, and suppliers have no one to work with. In this case, such a company may qualify for bankruptcy so that people and suppliers keep their jobs.
Types of Chapter 11 Bankruptcy
Chapter 11 personal bankruptcy
Chapter 11 personal bankruptcy applies to those individuals who are not ready to liquidate their assets as required under section 7. It is for those individuals with too much debt that disqualifies them for a reorganization plan as per Chapter 13. For instance, to qualify for this type of bankruptcy, your debts should not exceed:
- $1,184,200 in secured debts such as car payments or mortgage
- $394,725 in unsecured debt such as credit cards
Chapter 11 Business Bankruptcy
This type of bankruptcy applies mostly to big companies. It allows these companies to continue with their business operations despite their outstanding debts. However, major companies’ significant decisions must first be approved by the courts. An excellent example of a company that has been able to file chapter 11 business bankruptcy successfully is General Motors.
Advantages of Chapter 11 Bankruptcy Filing
Chapter 11, bankruptcy filing has the following benefits:
- It provides an opportunity for businesses to continue with their operations.
- It provides you with time to dispose of the assets you don’t require settling your debts.
- It prevents you from sacrificing your personal disposable
- Provides reasonable terms on secured debts through modification
- It helps to discharge debts that seem impossible to payback
Chapter 11 bankruptcy process takes about 3 to 5 years to bring business back to its normal status. However, the process can be very complex and may only work for those who meet the requirements and present convincing evidence and proposal in court.