It is no secret how many businesses across the United States, and the world, have been affected by the pandemic. With customers unable to visit their favorite shops, restaurants, and suppliers, businesses have been doing their best to find solutions to improve their financial struggles.
One possible avenue that business owners have had some success in post-pandemic, is Chapter 11 bankruptcy, and our Chapter 11 team along with the Los Angeles bankruptcy team outlines the process below.
Who Can Apply For Chapter 11
Chapter 11 is a bankruptcy designed for consumers and business owners to help protect themselves from personal and professional creditors alike.
There is a streamlined bankruptcy under Chapter 11 labeled subchapter 5 (Small Business Restructuring Act or SBRA”). This chapter works best for small businesses, corporations, and partnerships that have no more than $7,500,000 in secured, unsecured noncontingent, and liquidated debts. This is oftentimes the most effective chapter 11 for small businesses.
Some individuals are able to file under Chapter 11, but only if they have too much debt to file under Chapter 13 reorganization or too much income to qualify under Chapter 7.
The current debt limit for Chapter 13 generally hangs around the following amounts (as of April 2019):
- $1,257,850 for secured debt
- $419,275 for unsecured debt
If the business cannot reorganize then chapter 11 may not be the best alternative for the company.
What The Process Looks Like
The process starts with the filing of the case and the proposition of a payment plan. During the first 120 days of filling, the filer has the exclusive right to propose their plan to reorganize their business, but it must be confirmed by any relevant creditors.
Creditors are then able to vote on the proposed payment plan. Once certain voting thresholds are reached, and the plan is confirmed by the court, it then becomes legally binding.
Once approved, the plan injunction replaces the automatic stay to ensure that any and all creditors and lenders are prohibited from preventing business operations or taking any collection actions on assets.
Then businesses are able to perform business as usual. The filer is able to continue their business operations while simultaneously paying off their debts through their payment plan.
The Benefits of Chapter 11 Bankruptcies
There are several benefits of Chapter 11 that set it apart from other chapters of bankruptcy. One of the most notable benefits is that filers are not required to forfeit or liquidate any of their property to pay off debts, unlike Chapter 7 bankruptcy. It allows filers to extend the life of their payments while simultaneously dividing them into smaller amounts, to finally make paying them back manageable.
Alongside the benefits mentioned above, here are additional advantages of Chapter 11:
- An automatic stay is put in place as soon as the bankruptcy papers are filed. This keeps any and all creditors or lenders from contacting filers or attempting to collect on any outstanding debts.
- It gives business owners the ability to keep their businesses running to continue making on-time payments and earn an income for themselves, their families, and their employees.
- The bankruptcy process also allows high-interest rates to be modified along with debt structures.
- The amount owed by filers is reduced and spread out over a more favorable period of time tailored to each particular circumstance.
Contact Our California Bankruptcy Team Today
Having the constant pressure of finances bearing down on your life can be paralyzing, especially when you have a family and company that depend on you. We understand the intricacies of bankruptcy and dealing with creditors, and we are prepared to provide compassionate and personalized services to help you find financial freedom and keep your doors open.