Chapter 11 bankruptcy viable option for businesses stuck in the red

Businesses often struggle when the economy is unpredictable. Fortunately, Chapter 11 bankruptcy is an avenue that has helped hundreds of thousands of business owners throughout the years.

Many businesses often struggle when the economy is unstable. The real estate bubble that occurred not so long ago is a prime example. When businesses are hit with unexpected hurdles that result in financial strain, many aren't sure where to turn or what to do.

Fortunately, Chapter 11 bankruptcy is available as a viable option and has helped hundreds of thousands of business owners throughout the years. Business owners struggling to keep their businesses afloat should understand what Chapter 11 bankruptcy is and how it can help.

Understanding Chapter 11 bankruptcy

Chapter 11 bankruptcy is one of a variety of bankruptcies available. In a Chapter 11, the financial dealings of a business are essentially reorganized. Business owners with limited liability companies, partnerships, or corporations often file Chapter 11.

In a Chapter 11 filing, a business owner typically proposes a reorganization plan, which includes a written disclosure statement with a list of assets and liabilities. It also includes potential downsizing or liquidation proposals, among other information. Thereafter, creditors of the business or other interested parties can propose a competing reorganization plan.

After the reorganization proposal is submitted, a confirmation hearing is scheduled. The bankruptcy court will typically approve the plan as long as certain factors are met. In order to meet approval, the plan must be feasible, it must be made in good faith, and serve the best interests of the creditors, among other stipulations.

Alternative to Chapter 11 bankruptcy

In some cases, business owners may alternately choose to file either a Chapter 7 (liquidation bankruptcy), or Chapter 13 (individual reorganization bankruptcy). Either option may be superior if the business owner wishes to combine personal affairs with his or her business debts. However, determining which avenue is the best route will depend on individual circumstances and the advice of a bankruptcy attorney who can offer guidance about the law.

Overcoming the reluctance to file

It's understandable that many business owners are reluctant to turn to bankruptcy to help with their struggling business. Many may feel that the dreams of operating on their own have failed if they do.

But it's important for struggling businesses owners to understand that they are not alone; there are hundreds of thousands of companies that file Chapter 11 bankruptcy every single year. Even high-profile companies like General Motors have turned to bankruptcy for relief.

All businesses under pressure to make ends meet should never overlook the protections that bankruptcy laws can offer. Reaching out to a bankruptcy attorney to learn more is the first step.

Keywords: Chapter 11 bankruptcy, business bankruptcy