Top Reasons to File Chapter 11 Bankruptcy
Bankruptcy is something business owners seek to avoid, but unfortunately it is also something that becomes a reality for some businesses. Should such a situation arise, there are different options for bankruptcy filings, with Chapter 7 (liquidation) and Chapter 11 (reorganization) being the most common forms of business bankruptcy.
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Bankruptcy is something business owners seek to avoid, but unfortunately it is also something that becomes a reality for some businesses. Should such a situation arise, there are different options for bankruptcy filings, with Chapter 7 (liquidation) and Chapter 11 (reorganization) being the most common forms of business bankruptcy. To help with the decision on which type of bankruptcy to file, here are the top reasons for a business to file Chapter 11.
- Business continuity
Chapter 11 allows the debtor to remain in business and attempt to reorganize debts. This, along with the automatic stay of debts, allows the company to maintain operations and thus gives it a chance to make the money necessary to pay off its debts.
- Management remains in control
In Chapter 7, a court-appointed trustee takes over the debtor; in Chapter 11, the debtor’s management stays in control of the business. This allows the people who know the company and the industry best to navigate their way through the bankruptcy process.
- Automatic stay
Just as in Chapter 7 bankruptcy, there is an automatic stay on debts, and creditors cannot bring lawsuits or collect large amounts of assets. This saves the debtor time and money that it can use to reorganize without pressure from creditors.
- Claims deadline
Another benefit similar to that in Chapter 7, creditors must file a claim by a certain date, and disputes can be resolved quickly. This helps the process move smoothly and more quickly, since it reduces the amount of time spent waiting for creditors to file claims or for disputes to be resolved.
Source: Robert Lapowsky, attorney and shareholder with the Philadelphia office of the firm of Stevens and Lee. He can be reached at Stevens & Lee, 1818 Market Street, 29th Floor, Philadelphia, PA 19103; 215-751-2866; email: rl@stevenslee.com.
