What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is most thought of as the commercial bankruptcy option for businesses, sole proprietors and partnerships. And it involves a reorganization of a debtor’s business affairs, debts, and assets. While the debts are being restructured, they liquidate assets and restructure payment plans with creditors. Chapter 11 is also available to individuals. However, not many individuals take advantage of it because it is complex, time intensive and costly. The same goes for businesses. It is a fact that many businesses have used Chapter 11 to successfully turn around operations. That said, it remains to be the most complicated, expensive, and time-consuming option. Thus, a company should carefully consider taking on Chapter 11 only after exhausting other available alternatives. Consulting with an experienced New Jersey Chapter 11 bankruptcy attorney is a prudent idea.

What Can Chapter 11 Do?

Chapter 11 helps a business restructure its debts and obligations. It does not usually close down the business. In fact, many large U.S. companies have filed Chapter 11 and stayed afloat. They include, among thousands of corporations, General Motors, United Airlines, American Apparel, Wet Seal, and most recently, Sears.

Corporations, partnerships and limited liability companies (LLCs) usually file Chapter 11. In rare cases, individuals with excessive debt, who don’t qualify for Chapter 7 or 13, may qualify for Chapter 11. It takes anywhere from a few months to a few years to complete a Chapter 11 bankruptcy case.

Because of the required time to restructure their debts, the debtor gets a fresh start once they fulfill their obligations under a reorganization plan. Even though Chapter 11 is primarily for businesses, individuals can qualify due to excessive debt. However, because Chapter 11 bankruptcy is the most complicated of all bankruptcy chapters and usually the most costly, it is best for individuals to exhaust their other options before going the Chapter 11 route.

How does Chapter 11 help small businesses?

Chapter 11 bankruptcy reorganization is commonly identified with larger corporations. However, qualifying small businesses can also utilize a Chapter 11. The Small Business Administration defines a “small business” as one with fewer than 500 employees. As such, “small businesses” make up the vast majority of Chapter 11 filings. However, they do not always linger in Chapter 11. They often become Chapter 7 bankruptcies. This happens because the court decides the business has little or no chance of becoming profitable. An example of such business that converted from Chapter 11 to Chapter 7 is electronics retailer, Circuit City. It was in Chapter 11 for a short period of time before converting to a Chapter 7. Their doors closed for good.

Chapter 11 allows small businesses the advantage of additional time to file a plan and renegotiate terms with creditors (180 days, versus 15 days for Chapter 7). However, the expense of a Chapter 11 alone may be too much for a struggling small business in New Jersey. The legal fees can five figures but may be worth it if the business can become profitable again.

Contact a New Jersey Chapter 11 Attorney

If you are considering filing for Chapter 11 bankruptcy in New Jersey, give us a call. We have a great deal of experience helping businesses in financial crisis recover using Chapter 11 and other bankruptcy protections.

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