Chapter 11 and 13 Bankruptcies: Keeping Businesses Open During Tough Times

February 08, 2012

Chapter 11 and 13 Bankruptcies: Keeping Businesses Open During Tough Times

The recent economy has left thousands of American companies straddled with debt and struggling to pay their bills. Consumers have been increasingly cost conscious -- purchasing far fewer luxury items -- and have had to utilize credit more often than in the past.

Additionally, The Wall Street Journal reports that business to business transactions have slowed as companies choose to conserve cash reserves, rather than reinvest in expansion or other ventures. In fact, America's corporate cash reserves recently reached their highest level in nearly half a century.

Chapter 11 Bankruptcy Option

Both large and small businesses have been affected by this downturn, leaving many small business owners wondering how they can sustain operations. If you are a small business owner and this question sounds familiar to you, perhaps it is time to consider filing for bankruptcy protection.

The Federal Judiciary states that Chapter 11 bankruptcy is traditionally used to reorganize many types of businesses -- primarily corporations and partnerships. Unlike a Chapter 7 bankruptcy, however, Chapter 11 allows business owners to retain control of their business and remain operational. This is beneficial for owners and creditors because, in the long term, creditors will receive more than if a business dissolved under Chapter 7.

This is accomplished through a very detailed and monitored process, so any owner filing for Chapter 11 protection should contact an experienced business bankruptcy attorney to ensure all laws and processes are followed. Some steps in the process include:
-Disclosure of all assets and debts
-Appointment of a creditors' committee to represent creditors (depending upon total debt amount)
-Draft a "reorganization of debt" plan
-Approval from creditors and certification from the court

Once certified, a business owner must comply with all terms of the reorganization plan. Finally, once the plan is complete, all remaining dischargeable debt is eliminated.

Chapter 13

Sole proprietors of small businesses often find Chapter 13 bankruptcy as a more appropriate option. Unlike corporations and most partnerships, sole proprietors are often personally liable for the debts of their companies. Therefore, individual business owners who wish to keep their personal property often find Chapter 13beneficial, especially when their home is at risk for foreclosure.

Much like a Chapter 11 reorganization plan, a Chapter 13 debtor drafts a repayment plan plan (usually 3 to 5 years) that must be approved by creditors. All dischargeable debts are eliminated upon successful completion of the repayment plan.

However, the eligibility requirements for Chapter 11 and Chapter 13 differ. Therefore, any small business owner contemplating bankruptcy to keep their business open should speak with a qualified bankruptcy attorney to discuss their options and eligibility.

Article provided by The Epstein Group
Visit us at http://www.epsteingroup.com