My Chapter 11 Bankruptcy

How Chapter 11 Bankruptcy can help (and hurt) your failing business

The goal of Chapter 11 bankruptcy laws is to protect the company. During a bankruptcy filing, the business owner has no rights, the unsecured creditors have a few and the secured creditors have many rights to the business's capital. In short Chapter 11 takes care of the company's interests first and the secured creditors second. The unsecured creditors and the owner must fend for themselves.

That said an incorporated business can successfully come out of Chapter 11 bankruptcy. If they want to reduce their debt and have plans for a new business strategy, Chapter 11 may be the right move. Under such circumstances, the business must have enough cash in the bank to file for bankruptcy protection and pay the legal fees. If the business cannot afford the lawyer, then the court will later liquidate the business to pay the fees and the business will have to close its doors.

Procedure for Chapter 11 Bankruptcy

The most common reason companies file for bankruptcy is because they cannot afford to pay their debts. Chapter 11 bankruptcy protection is a last resort once a company realizes its debt payments have surpassed its incoming sales. However, businesses can make their unsecured creditors aware of their inability to pay. Often these creditors will not press further for repayments, although they can appear before the court to discuss their claims. They also can also appoint representatives to negotiate a settlement with the business in debt.

The procedure for filing a case under Chapter 11 bankruptcy is as follows:

i) The company asks for protection under Chapter 11.

ii) The court, lenders and creditors take all available financial information on the company and analyze it.

iii) The business prepares a reorganization plan. This must include amounts and the times the business will pay all creditors. After the court and creditors approve the reorganization plan, it becomes the blueprint for the future of the company. However, the judge will only accept this plan if it covers the following details:

a) Status of the debtor company's capital structure.
b) Availability of financing and credits in future.
c) The earning capacity of the company after complete reorganization and its ability pay the creditors.
d) Stability of the management.
e) The Industry’s general economic conditions.
f) The general economic condition of the company’s geographic regions of operation.

Finally, filing for a Chapter 11 bankruptcy has one more important part. It is the disclosure statement. This statement gives projected on business sales, financial settlements under the new plan with creditors and the estimates of the company’s liquidation value.

Fix your business and avoid Chapter 11 bankruptcy.