A business is not something that is always stable. Sometimes the business is skyrocketing, and sometimes the business is plummeting. In instances when a business is unable to pay its debts or creditors, the business or it creditors can file for protection under either Chapter 7, the business ceases and the residual amount is returned to the owner of the company, or Chapter 11, where the debtor is in control of the business and is subject to the jurisdiction of the court. This article will tackle how to file Chapter 11.
Prepare a request for Chapter 11. A Chapter 11 petition is usually filed by the owner of the business. An individual can file only one petition every 180 days with a court for federal bankruptcy. The business is given only 120 days for reorganizing once you send in your petition. If the business fails to comply with the orders of the court, the petition will be dismissed.
Name your assets, liabilities and creditors. You must give the court a list of these entities. You divide your creditors into two groups: unsecured secured. Creditors that belong to the secured group are to be paid first if your bankruptcy will require liquidation. Your current repayment plans, business income and expenses must also be included.
Attend court hearings. You have to make sure that you attend. These hearings are orders of the court and if you fail to comply, your petition will be dismissed. In the hearings, you are required to answer the questions of both the trustee of the case and your creditors. Their questions will mostly be regarding the operations of your business and property, as well as how you conduct your business during reorganization will be.
Restructure your business. During the reorganization stage, you should plan to restructure your business. Get it back on track by improving its profitability. Put things in order by partially liquidating your assets. Make sure that your plans are approved first before you implement them.
Review before you submit. Before you submit your plans, be sure to have your financial advisers review it and that it is favored by your creditors. The plan will be relayed to your creditors by the courts, so you do not have to personally send it to them.
Approved and rejected reorganizational plan. You should immediately execute your reorganization plan if it gets approved. If you deviate in any way from your contract, legal actions could be pressed against you. What happens if the plan gets rejected? Two things can actually happen: either the creditors would prepare another proposal, or worst, they could file a Chapter 7 bankruptcy, which would be to your disadvantage-and you lose the business for good.
When a business is faced with the dilemma of going bankrupt, the owner could choose between filing for a Chapter 7 bankruptcy or Chapter 11. If you have no intention of saving the business then it is you who should choose the Chapter 7 and you will lose the business and receive the residual amount. If you do intend to save the business however, Chapter 11 should be your choice because you would be given a chance to reorganize your business.