Helping With Your Financial Future

What should you know about Chapter 11 Bankruptcy in California?

On Behalf of | Jan 9, 2023 | Chapter 11 Bankruptcy

If a business cannot pay its debts, it may file for Chapter 11 bankruptcy. The ultimate goal of this type of bankruptcy involves reorganizing debts to make paying creditors feasible.

Chapter 11 eligibility

Primarily, businesses file for Chapter 11 bankruptcy. These include sole proprietors, partnerships and corporations. In limited cases, individuals who do not meet the requirements for other types of bankruptcy may choose Chapter 11 for debt relief.

Chapter 11 goals

When businesses file for Chapter 11 bankruptcy, their primary goal involves keeping their company open while coming up with a repayment plan for their creditors. Businesses often choose Chapter 11 to retain their properties because they do not qualify for the types of bankruptcy exceptions granted to individuals.

The goals of Chapter 11 typically include:

  • Provide a fresh start for the debtor.
  • Create a plan for reorganizing the debt.
  • Dissolve debtors’ business contracts or arrangements that no longer benefit them.
  • Provide larger creditor repayments than many other types of bankruptcy.

Repayment of debts

Under Chapter 11, businesses must propose a repayment plan. These plans may take up to ten years to fully repay debts. Courts may grant a complete discharge of certain debts.

Required Chapter 11 documents

For the court to approve your Chapter 11 bankruptcy filing, you need to demonstrate that you qualify for it. Debtors filing Chapter 11 must file the following papers with the court:

  • Assets and liabilities schedule
  • Income and expenditures schedule
  • Schedule listing Executory contracts
  • Schedule listing unexpired leases
  • A financial affairs statement

Moving on with your business

Chapter 11 should allow you to move on with your business and continue to operate. Other types of bankruptcy may force you to liquidate your entire company. Your company’s specific financial situation determines whether Chapter 11 benefits you.