Suppose your California business struggles to stay afloat, and creditors call you daily, demanding payment. In this case, a Chapter 11 bankruptcy might provide the means to regain financial stability and stop the harassment. Keep reading to learn the basic facts about this important chapter in the federal bankruptcy code.
Filing for bankruptcy
A Chapter 11 bankruptcy is commonly known as a reorganization bankruptcy. A company files a bankruptcy petition in federal court that contains the following information:
- Assets and liabilities
- Income and expenses
- Copies of contracts and unexpired leases
- Statement showing why the company ran into financial difficulty
After filing the petition, the company’s representative meets with all the creditors to devise a repayment plan that allows the company to continue to operate. After the creditors approve the document, the representative submits it to the court for review. The demand calls stop at this point, and everyone involved must adhere to the approved provisions.
Chapter 11 advantages
A Chapter 11 bankruptcy provides many advantages for a company in financial trouble. These include the following:
- Ability to stay in business
- Ends debt collection contacts
- Enhances financing opportunities
- Asset retention
- Legal right to cancel contracts and leases
Chapter 11 disadvantages
Filing for bankruptcy has its downside. Here are some of the drawbacks:
- Expensive process
- Extensive paperwork
- Bankruptcy documents are public
- Possibility for reduced compensation
- Company profitability requirement
- Court approval for new business activities
- Possibility for stock devaluation
A Chapter 11 bankruptcy may help your company recover from a downturn. Discuss the pros and cons in more detail with a professional before filing a petition in a bankruptcy court.