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How Chapter 11 bankruptcy actually works

This blog recently discussed the way business bankruptcy can help struggling businesses and professionals. A closer look at Chapter 11 bankruptcy may help business owners, professionals and others seeking debt relief better understand how bankruptcy may be an option to consider. Chapter 11 bankruptcy provides an option for businesses with heavy debt burdens to reorganize debts.

Chapter 11 business bankruptcy allows businesses to develop a plan to return to profitability following a bankruptcy through measures that may include trimming costs and seeking to generate new sources of income and revenue. The process also provides relief from creditors while the process is progressing. Once a Chapter 11 petition has been filed, an automatic stay is put into place to prevent creditor actions. The business, however, continues to operate as a reorganization plan is developed to repay creditors.

The Chapter 11 process can include the business renegotiating leases and contracts. Debts may also be discharged or may be partially paid as debts are placed in different categories with different corresponding priorities for repayment. Once the reorganization plan is confirmed by the court, debts that existed prior to the reorganization plan, that are not addressed by the reorganization plan, are discharged. The business is then required to proceed according to the approved reorganization plan. It is important for the business to comply with the reorganization plan approved by the court.

Facing financial challenges can be overwhelming for businesses, professionals and individuals but bankruptcy options are available to help. It is always useful to understand the options, how they work and under what circumstances they may be available to find the best option for the business or situation being faced.

Source: Bankruptcy.findlaw.com, "Chapter 11 Bankruptcy," Accessed June 20, 2016

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