To companies that are struggling with financial obligations, business bankruptcy under Chapter 11 looks like the perfect debt restructuring alternative on paper. But it’s significantly less simple as it appears to be. Prior to plunging in, it is highly recommended that you must carefully assess whether your business is a going issue. If you don’t catch a glimpse of any hope for your company, then, right after consulting with your legal counsel, you can choose business bankruptcy under Chapter 7. Chapter 7 liquidates your firm, while Chapter 11 gives you more time to rebuild your affairs. You may choose to reorganize your business in accordance with Chapter 11 only if you are fairly certain of earning revenues and profits that are adequate to pay back financial obligations and fuel the company. Prior to approaching an attorney to file for Chapter 11 bankruptcy, keep these things in mind:
1. You have to file your fiscal reports along with your business bankruptcy petition. For this reason, it is a good idea to always keep tax records, financial reports, and record of contracts and contingent liabilities ready. The list of contracts must also include details of contracts that have been gotten into but not yet performed.
2. Filing for business bankruptcy calls for an attorney regarded as an expert at your kind of bankruptcy. For example, if you’re seeking protection under Chapter 11, it’s most advantageous not to work with an attorney who specializes in Chapter 7 bankruptcies. Given that under Chapter 11 bankruptcy you must skillfully illustrate your case to creditors and an attorney who specializes in a bankruptcy under Chapter 7 may not be good at it. Chapter 7 bankruptcy is highly straightforward and blunt – your company must be liquidated and so the court will help you to do it. Chapter 11 bankruptcy is reorganizing the company and it needs you to negotiate with your creditors, which is a lot more than a simple blunt approach.
3. Farmers can contemplate filing for bankruptcy under Chapter 13 instead of Chapter 11. Sole entrepreneurs should give consideration to filing for bankruptcy under Chapter 13, which is referred to as wage earner’s bankruptcy. Chapter 12 and Chapter 13 bankruptcies are simpler and easier.
4. You have got to always be truthful with your lawyer. Divulge all material and immaterial money events and circumstances which dragged you into the debt in the first place. These details will help your case. Reveal your priority debts like child support, spousal support, employee benefits, taxes due, etc. Talk about your creditors as well and classify them into semi-secured, fully secured, unsecured, financial obligations from family members or subsidiary companies, etc.
5. Bear in mind that the moment you submit a petition under Chapter 11, you will immediately become a debtor in possession. The court will allow you to act as the case trustee and supervise the procedure, unless the court finds you liable for fraud or misrepresentation. You will have to submit a restructuring proposal to a panel of creditors. This panel will then vote on your restructuring proposal and if the creditors’ committee passes it, the bankruptcy court will approve it too. The court will call for you to accomplish the restructuring plan to perfection. If you deviate, and if the creditors oppose, the total Chapter 11 bankruptcy process will fail.
So, all in all, a bankruptcy filed under Chapter 11 is a technically complicated., costly and a time-consuming process. If you have anyway decided to file for Chapter 11, be certain that that you hire a reputed and experienced legal counsel.