Bankruptcy is one of the most unfortunate problems in an entrepreneur’s life. It means that his business will close after declaring a state of being penniless to support the business. Nevertheless, it is still the best solution in many financial issues.
Although bankruptcy is a common term, many people ask what is Chapter 11 in terms of bankruptcy. You will find out what this type of bankruptcy is and how this system will work for an entrepreneur.
What is Chapter 11 Bankruptcy?
Chapter 11 is commonly known as bankruptcy on a business level. This type is also regarded as a reorganization bankruptcy and awarded to businesses that incurred a lot of debt.
Using this solution means that a business will continue its operation despite being declared bankrupt. It will undergo reconstruction process and will be monitored by a trustee. The reconstruction process may occur on the business’ income flow or transform the business completely to make it more profitable. The business will be able to deal with the debt and treat the entire business.
Coming up with the reconstruction plan is between the debtor and the creditor. The creditor is the one interested in salvaging the business and may be the primary one who comes up with the reconstruction plan. Other interested parties may also share their proposals to save a business.
Exempt Property for Chapter 11 Bankruptcy
In most cases, bankruptcy leaves an impression that the person who declared himself as bankrupt will lose all his assets like properties. However, Chapter 11 bankruptcy offers exempt property rule that keeps bankrupt individuals from losing their houses.
Some individuals may claim that this exemption may be irrelevant to Chapter 11 bankruptcy. Businesses do not operate or own a home. They may have other properties like buildings. Nevertheless, this exemption can be beneficial for those entrepreneurs operating a business that own a home.
Is It Better than Other Types of Bankruptcy?
Chapter 11 bankruptcy is somewhat better than the known type of bankruptcy or liquidation bankruptcy. An entrepreneur will still be able to run a business with a goal of gaining money with assistance from a reconstruction plan. Therefore, it can save a business and the person who’s in debt.
However, an entrepreneur must know that not everyone may be granted a reconstruction plan upon declaring their bankruptcy. Creditors may verify a business’ profitability, its current financial status, and the amount of money owed from creditors. If creditors don’t find the business working effectively despite reconstruction, they won’t continue with the proposal and continue with liquidation.
What should an Entrepreneur Do in this Bankruptcy Type?
Even before declaring bankruptcy, an entrepreneur should consult first with a financial expert. The financial expert will analyze the current business situation and will give the entrepreneur an idea about Chapter 11 bankruptcy. The financial expert will also discuss other solutions for the entrepreneur to at least keep some of his assets or to get this type of bankruptcy.
There are many people who had Chapter 11 bankruptcy and became exempt property examples themselves. If you are facing financial problems in your business, consult an expert right away to know if you’re eligible for this type of bankruptcy or not.