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Why would a business want to file Chapter 11 bankruptcy?

On Behalf of | Apr 7, 2021 | Chapter 11 Bankruptcy

Chapter 11 bankruptcy is an effective method of restructuring liabilities for a California business that is facing financial struggles. Some businesses are experiencing so much financial chaos that even bankruptcy will not help, but others can sometimes manage to survive. When the business forecast is optimistic, the accepted petition filing can stop certain actions by creditors and leave the doors open for cash inflow while the petition is being evaluated. Some businesses would need to close otherwise, potentially not being financially able to resume operations after the case is finalized.

Difference between Chapter 11 and Chapter 13 bankruptcy

Chapter 11 bankruptcy is effectively Chapter 13 for businesses without income qualifications, but sometimes individuals use the chapter as well when they run a sole proprietorship. Chapter 13 is commonly filed to save a real estate property, but many business operators rent or lease their facilities. Those individuals who do have real estate in a financial report may be able to restructure debt repayment plans under Chapter 11 or 13 depending on case details.

How an attorney can help

Chapter 11 bankruptcy petitions are often more complex than a personal Chapter 13 filing. In addition, both have much less impact on credit than a Chapter 7 bankruptcy. Just as with personal bankruptcy, an experienced Chapter 11 bankruptcy attorney can compile all company documentation for presentation to the court along with potentially assisting in restructuring certain debt obligations with creditors.

While it is not necessary to have legal representation in a Chapter 11 bankruptcy, having a reputable attorney involved with the case shows the court and all creditors that the petitioner is serious about saving their business for long-term success. Because of the often complex nature of the matter, business owners should want to have legal assistance throughout the process.