When a business is financially struggling, it is important for business owners to be aware that there are bankruptcy options that may allow them to address their debt-related concerns and remain in business. Chapter 11 bankruptcy provides an option to allow the business to continue to operate while restructuring its debt so it can meet its goal of returning to profitability.
Business bankruptcy options are available to both small businesses and larger corporations. Once the business has filed for Chapter 11 bankruptcy protection, an automatic stay goes into effect which prevents creditors from pursuing collection actions during the bankruptcy process and can provide some initial relief to a struggling business. Following the initial filing, the company will work out a reorganization plan with the bankruptcy court to repay their debts with the goal of developing a plan that allows them to remain in business.
Chapter 11 bankruptcy allows the business filing for bankruptcy protection to work to trim costs and seek new sources of revenue and income to address its debt burden with the goal of emerging financially healthy. In addition, the process allows the struggling company the opportunity to renegotiate leases and contracts and seek to have some debts at least partially discharged or pursue opportunities to repay them such as through new sources of revenue or income. Creditors are placed into different classes for repayment purposes and generally have an incentive to work with the business because they may be in a more beneficial position doing so than not. Creditors must vote on the repayment plan developed and the bankruptcy court must also approve it.
Generally, once the reorganization plan has been developed and approved, and the company adheres to it in good faith, any debts that existed prior to the bankruptcy but are not directly addressed by it will be discharged. Once the company has received a debt discharge, it can further pursue its goal of profitability which the bankruptcy process can help facilitate in some circumstances, making it worthwhile for struggling businesses to fully understand the process.