What Will Be The Right Period To Begin Taking Into Consideration Filing For Chapter 11 Business Bankruptcy

By William E. Groce

Chapter 11 business bankruptcy is also called as business reorganization. It consists of filing a reorganization plan (along with specified financial documents) with a bankruptcy court. The court calls for a meeting of all the creditors who need to vote on and approve the reorganization plan by a 3/4th majority. The company then starts carrying out the plan and after execution, the business emerges from the bankruptcy and becomes free of debt.

The Warning signals of Chapter 11 business bankruptcy:

- When you start using up the money you have withheld for taxes. Such money must be paid to the government, but if you utilize it for business, it indicates you are cash-crunched.

- When you cannot pay your vendors in time and keep stretching their payments over a prolonged period of time, or switching vendors because you are desperate for credit.

- When there is a critical situation affecting the business like death of a partner, or an embezzlement, or a natural disaster, etc.

- When you are often late or unable to repay secured debt installments.

- When your business has one or two customers and they declared business bankruptcy.

Business owners tend to wait for better times and expect their creditors to listen to them, which is in fact one of the biggest mistakes they could make. Creditors want repayment of debts and will do anything to get their money back. As soon as the warning signs show up, a business owner should appoint a Chapter 11 business bankruptcy lawyer.

A business can be helped in exploring other possible options aside from bankruptcy by hiring a lawyer. For instance, the lawyer would take a look and analyze the situation, then make suggestions such as a debt-for-equity swap or a debt restructuring exercise. If an attorney is not hired by the business owner, then he is surely digging a much deeper hole to bury himself in.

No business bankruptcy is easy. Child support, taxes, alimony, etc, which are classified as priority debts would have to be paid, and if the business owner's personal property has to be sold just to repay these, then it has to be done. When it comes to priority debts, the law does not take pity. So, if a business is struggling because of its priority debts, then a Chapter 11 business bankruptcy may not help - the business owner may have to choose Chapter 7 bankruptcy, which is business liquidation.

Once priority debts are met, secured creditors come next, followed by semi-secured creditors and eventually unsecured creditors. In a Chapter 11 business bankruptcy, majority of these creditors need to agree with the reorganization plan. The moment that a reorganization plan is agreed upon, it must be carried out perfectly by the business owner. The creditors could take legal steps to recover their money in the event that the Chapter 11 process fails, which could come about if the business owner does not execute the plan.

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