When financial times become tough, the commercial entity (the firm) has not many options to survive, especially having huge burden of debts. Either firm finds additional investments, or shuts down its activity and goes bankrupt.
Luckily, being “bankrupt” doesn’t always mean being zero with cancelled business processes.
What is chapter 11 bankruptcy and what relief it could potentially bring to the company? Some of its benefits we are going to unleash and make it more clear by explaining step-by-step.
Chapter 11 bankruptcy was specially designed for the companies, needed to reorganize their debts in order to be able to pay them later. The firm should be capable to prove to the court that it has proper assets and upcoming profits to pay the debts in future. This proof calls repayment plan and it has to be composed with the detailed explanations and financial model of debts reorganization.
When the filing for bankruptcy chapter 11 is successfully approved, the firm may contact its creditors to discuss changes of debt’s terms.
Changes include lower interest rates, longer period between payments, partial discharge, etc. After the firm has come to an agreement with the creditors, it continues to operate efficiently having newly reorganized debt.
Seemingly simple, the procedure of filing for chapter 11 contains some pitfalls, which yet can be easily solved by the professional bankruptcy lawyer. The consequence of the failure with chapter 11 is normally a full liquidation and a filing for bankruptcy chapter 7.
So, what are the main benefits companies get with the successful filing for bankruptcy chapter 11?
- By decreasing amount of firm’s obligations and restructuring debt, company keeps operating and continues to earn the money.
- When the petition is approved, the company instantly receives the protection from all potential and current lawsuits, bank levies, wage garnishments etc. All collection activities stop and company receives time to recover.
- One of the greatest benefits chapter 11 gives is an opportunity to reduce interest rates on loans which are secured by property (real estate, valuable equipment, etc.). This adjustment empowers entity to make regular payments according to its current financial situation.
- By filing for bankruptcy chapter 11 company is not obliged to sell its assets, though it could do it in order to downsize the business and pay the part of the money it owes.
- The longer period for making a restructure plan. If the entity is filing for the chapter 11, the reorganization plan should be delivered to the court within the 120 days after the petition. For the small business this period extends up to 180 days.
- Extended period of payment on unsecured debts. This is a really great benefit the bankruptcy brings, because the extension of payments could be up to five years. This is essential relief, allowing entity operates efficiently and generate appropriate profit for secured debts payments.
There is one more essential benefit, which can bring the organization back to financial life. In spite of being announced bankrupt, the company is allowed to take new loans in order to revive the business processes. Therefore, answering a question – what is chapter 11 bankruptcy, we can surely say: it’s a true breath of fresh air and a chance to get back in race with the least harm for the business.