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What to know before using Chapter 11 for business bankruptcy

Many Tennessee businesses flourish while others, for some reason, fail to generate enough revenue to survive. When this happens, entrepreneurs can generally choose from three main types of bankruptcy: Chapter 7, 11 and 13. Each has its pros and cons, but many experts believe that Chapter 11 should be a last resort - after other strategies have failed. Learn more about why companies should hold off on using Chapter 11 as a business bankruptcy.

A company seeking Chapter 11 will need a formidable plan for a successful business reorganization. The plan must include enough money to pay for the bankruptcy itself - which could cost $100,000 or more. In addition, the plan needs to raise enough money to finance the company once it emerges from bankruptcy. There must also be agreements from the creditors to accept reduced payments.

In some cases, an individual's personal assets may be at risk in a Chapter 11 bankruptcy. This is especially true if the business is not incorporated. Many entrepreneurs guarantee the debts on a personal level and may go after cars, houses and other assets. This means that an additional bankruptcy - Chapter 7 or 13 - must be filed in order to protect assets.

Chapter 11 bankruptcy does have its benefits, but it's the most expensive form of bankruptcy. It's also time-consuming, but this can work to a company's advantage, giving it extra time to formulate a plan for success. However, Chapter 11 also relinquishes some of the control of the business to the bankruptcy court, so the business owner may not have any say in major decisions. A bankruptcy lawyer can assess a company's situation and determine the best plan of action for profitability.

Source: Orlando Business Journal, "6 things you need to know before filing Ch. 11 bankruptcy," John E. Kane, March 18, 2015

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