Chapter 11 bankruptcy is one of the most common ways that businesses, small and large, shed debt and save themselves from collapse when facing financially troubled times. Below are a few ways that Chapter 11 bankruptcy works to save businesses from shutting their doors because of debt.
- Chapter 11 bankruptcy allows the debtor company to handle their own financial affairs without the intervention of a bankruptcy trustee. While a United States Trustee will oversee the case, the debtor company retains control over the everyday financial operations of their company. This allows owners to make decisions which are in the best interest of their survival without the input of the bankruptcy trustee who may not understand the business or industry.
- Chapter 11 bankruptcy allows business debtors to pay off debts at a later date, unlike Chapter 13 bankruptcy. In Chapter 13 bankruptcy, the debtor must immediately begin repaying creditors after their bankruptcy plan has been approved. However, business debtors in Chapter 11 bankruptcy may postpone making creditor payments until they are financially able. For example, a business debtor might decide to sell off some particular asset before they make bankruptcy payments.
- Chapter 11 bankruptcy allows business debtors to take more than the five year repayment time period available in Chapter 13 bankruptcy. This longer repayment period can allow cash strapped businesses to make smaller payments over time so that they have a chance to raise the capital they need to fund their debt.
It's important for debtors to understand that if they are filing bankruptcy as a sole-proprietor, they will need to include both personal and business assets in their Chapter 11 bankruptcy. Only partnerships, corporations, and limited liability corporations are allowed to file Chapter 11 bankruptcy without including the personal assets of the owners.