If you need to file for bankruptcy, then you might be a little overwhelmed. To help make your life a little easier, here is an explanation of Chapter 11 Bankruptcy, which focuses on the reorganization of a business.
Why you might need Chapter 11
If your business is in debt and unable to recover on its own, you will need to file bankruptcy. At this point, you have two options: Chapter 7 and Chapter 11.
Chapter 7 is a liquidation of assets, which means that the assets of your business will be sold off to pay any debts. However, Chapter 7 has the downside of effectively terminating a company, which means that your business cannot continue to operate after filing Chapter 7.
On the other hand, your business may continue to function after filing Chapter 11, which consists of a repayment plan. Under Chapter 11, your business will make (usually) monthly or semi-monthly payments towards your debtors for an agreed upon period of time.
Corporate vs. Personal Debt
In most cases, personal debt and corporate debt are separate. Therefore, if your company files for bankruptcy, you will likely not be affected and thus your assets will not be affected. Conversely, if you file for personal bankruptcy, then your business probably won't be affected.
The exception to this is when a business has a sole proprietor. In such a case, both personal and business assets are considered in the reorganization process.
The role of the trustee
Like in many other bankruptcy situations, the court will appoint a bankruptcy trustee to oversee the reorganization process. You will make your payments to this trustee, who distributes that money to your debtors. In Chapter 11 cases, the trustee has much more responsibility than they might have in a Chapter 7 or 11 bankruptcy due to the scope of the situation.
The trustee will have knowledge of all the financials of your business and is actually paid from the earnings of the company on a quarterly basis until the terms of the bankruptcy are met.
Potential outcomes
In the best case scenario, your business will be successfully reorganized and you will maintain control. However, that isn't always what happens.
If your business is unable to pay back its debts according to the repayment plan, or if it lacks the means to repay the debts at all, then it may be labelled as insolvent. In such a case, the ownership and assets of the business will transferred to the creditors and the original owner will be left with nothing.
To learn more, contact a lawyer such as Richard S. Ross - Bankruptcy Attorney.
