Each year 8 out of every 10 new businesses in the United States fail. Over time, that number grows to 9 of 10 businesses. When a corporation or limited liability company is unable to service its debt or pay its creditors, the company has many choices, among them to file Chapter 7 or Chapter 11 bankruptcy. In Chapter 7, the business ceases its operations altogether, a trustee sells all assets and distributes proceeds to its creditors. Chapter 11 provides tools to restructure debts and save viable businesses and jobs.
You’d be surprised how many well-known companies filed Chapter 11 bankruptcy and not only survived, but thrived after the process — companies like American Airlines in 2011, GM in 2009, Bill Heard Chevrolet, the largest Chevy dealer in 2008, Delta & Northwest in 2005, US Airways in 2004, United & US Airways in 2002 and thousands more.
How Chapter 11 works
The first step for the company is to hire a bankruptcy attorney, preferably an attorney with years of experience representing debtors in Chapter 11 bankruptcies. The Chapter 11 reorganization is very complicated process, which is why an experienced attorney is so critical in making the process a success.
The bankruptcy attorney will assist the company to file a Chapter 11 bankruptcy petition with the bankruptcy court. The next step is for the company to create a reorganization (or liquidation) plan. Unless, the debtor proposes liquidation, it should be a viable plan to keep the company operating on a long-term basis. The plan can propose to sell some assets, reject leases and close stores, restructure debts, reduce some debts, extend debt maturity and interest rates, modify rights of some secured creditors etc. All creditors are placed into classes and they vote on the plan. In order for the bankruptcy court to confirm the plan, at least one class of creditors whose claims are impaired has to vote for the plan and the plan has to be fair and equitable and has to not discriminate unfairly. If the plan is confirmed, the restructured debts became the obligations of the restructured company.
A company has to be represented by an attorney in Chapter 11. If your company is facing financial difficulties, call experienced Chapter 11 attorney Irena Juras at 480-425-2009 to find out what tools Chapter 11 provides for your company or contact us via our website today!