Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

Chapter 11 Bankruptcy: Can Reorganization Bankruptcy Help Your Cleveland or Akron Ohio Business?

Chapter 11 Bankruptcy provides for substantially more flexibility than Chapter 7 or Chapter 13. Though rules for Chapter 11 bankruptcy confirmation are clear, the paths are limited only by the creativity of counsel and willingness to work with creditors to establish goals. Even the most persistent and vigorous creditor ultimately just wants to be paid and, once the Bankruptcy Court protection is in place, recognizes that more money is likely from a business allowed to go forward.

Chapter 11 bankruptcy can be a very exciting option for small businesses facing debt that seems overwhelming.  It is a very effective way to deal with tax debt, secured debt, and unsecured debt, at any stage in the collection process. I have been able to step in with a restaurant suffering a parade of debt-collection process servers appearing at the noon-rush; pull investment property from a foreclosure; and put a halt to charging orders.

Working with small businesses has many similarities to working with individuals. The obvious reason is that small business owners are individuals.  They are individuals who have invested their egos, identities, it seems, their very souls in their businesses. I have been a small business owner for over 35 years. I can totally identify.

More information follows from more academic sources, but have in mind that every case turns on its own facts. The only way to find out how Chapter 11 bankruptcy may be an option for you is to have a discussion in detail about the financial facts of your case.

Chapter 11 bankruptcy for small business, also commonly called a reorganization bankruptcy, can be extremely complicated but may also help your business continue to operate in spite of debt problems. A Cleveland, Ohio business bankruptcy allows the business to restructure debts and reorganize in order to continue operating.

Corporations, LLC entities, sole proprietors, partnerships, and even individuals in rare cases can qualify for a chapter 11 case as long as they meet the requirements set out by the bankruptcy court. A Cleveland business bankruptcy attorney is crucial to help you determine whether your company qualifies, and help you navigate the complex and lengthy process so that you are successful and get the fresh start that you deserve for your Ohio business.

Because of the complex nature of a reorganization bankruptcy this is a legal proceeding that you should never attempt yourself. You need an experienced and qualified Cleveland business bankruptcy attorney on your side. Even a minor mistake or small oversight in the documentation or bankruptcy process can be devastating and cost you the chance of a fresh start for your company.

How Does a Chapter 11 Bankruptcy for Small Business Work?

Usually a Cleveland, Ohio chapter 11 bankruptcy proceeding means that the debts and obligations of the business are restructured with assistance from the bankruptcy court. Typically the business stays open and continues to operate. The goal is to help the business continue to operate in order to become more successful, not liquidation and financial ruin.

Many large corporations including General Motors and American Airlines have used chapter 11 business bankruptcy in the past in order to recover from financial setbacks and continue to operate.

The company that files for chapter 11 protection will propose a reorganization bankruptcy plan with the court for consideration. This plan is required whether the company is a corporation, an LLC, a partnership, or the owner is a sole proprietor, and it must be in the best interests of the company’s creditors. It is possible for creditors to file a reorganization plan with the court in a chapter 11 business bankruptcy if you do not provide a plan for consideration.

This is usually the most expensive and complicated type of bankruptcy relief available for small businesses but it can allow your company to continue operations while the process plays out. You should explore all other possible alternatives first. An experienced and knowledgeable specialist in this area of the law is needed for you to get the desired results and give your business the fresh start that it needs.

In many cases the owner or debtor, referred to as the debtor in possession, continues to operate the business and make many decisions. In situations where there is suspected fraud, gross incompetence, or dishonesty the bankruptcy court may appoint a trustee to step in and run the business while the Chapter 11 Akron Ohio business bankruptcy proceeds.

During a chapter 11 bankruptcy for small business there are some decisions that require court permission before they can be implemented. This includes:

  • Selling company assets that are not considered inventory
  • Starting, stopping, or significantly modifying any rental agreements
  • Starting, stopping, or expanding business operations
  • Vendor contracts
  • Dealing with union matters and contracts
  • Payments to attorneys and certain other expenditures
  • Any loans that will commence after the chapter 11 bankruptcy

Liquidation of company assets in order to pay off creditors is also possible with this type of business bankruptcy case. Whether this is the goal, or a restructure and reorganization is the desired outcome, the bankruptcy court will accept any plan presented as long as this plan is fair to creditors and feasible. Once the plan is accepted by the court then the process moves forward.

The Small Business Reorganization Act of 2019, effective as of February 19, 2020, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became law on March 27. 2020 after being signed by President Donald Trump, create special considerations for a chapter 11 bankruptcy for small businesses.

Both of these acts make it easier for small businesses to file for chapter 11 bankruptcy, but they also include new deadlines and restrictions as well. A Cleveland business bankruptcy attorney is needed to provide a thorough analysis of your business financial situation before you decide that chapter 11 is right for you and your company. All alternatives should be considered before a chapter 11 business bankruptcy case is filed.

Sources:

Maya Dollarhide, “Chapter 11.” Investopedia.com. https://www.investopedia.com/terms/c/chapter11.asp#:~:text=Chapter%2011%20is%20a%20form,time%20to%20restructure%20their%20debts. Accessed 14 July 2020.