Chapter 11

In addition to representing consumers throughout Southern California in Chapter 7 and Chapter 13 bankruptcies, The Los Angeles Bankruptcy Firm also helps businesses climb out of debt through the help offered by Chapter 11.  Although also available for individuals, Chapter 11 is usually sought by a business on the brink of insolvency.  A Chapter 11 reorganization allows the company to restructure its finances and debts with a plan to pay creditors over time while continuing to operate.  The plan may involve downsizing its workforce or selling off parts of the business to turn the company around toward profitability, as well as negotiating with creditors, such as lenders and suppliers, to work out practical financial arrangements.

 

In most cases, a trustee is not immediately appointed over the assets, as is the case in Chapter 7.  Instead, the debtor retains control of the business during the proceeding.  This “debtor in possession” may therefore continue to operate the business, subject to oversight by a creditors’ committee and the bankruptcy court. As in a Chapter 13, the creditors have an opportunity to object to a proposed plan of reorganization before it is approved.  Also, it is possible for a business to be forced into bankruptcy by its creditors in certain circumstances.  This is known as an involuntary petition and involves an initial hearing where the judge may allow or dismiss the bankruptcy proceeding.

 

An Alternative to Chapter 7

Businesses may also avail themselves of Chapter 7 protection.  A Chapter 7 liquidation is drastically different from Chapter 11 and requires the company to sell off most of its assets.  In most instances, a business that files Chapter 7 will not continue in existence after its debts have been discharged, whereas a Chapter 11 business may emerge leaner yet stronger than before, with a lighter debt load and on the track toward profitability.  The decision to file either Chapter 7 or Chapter 11 involves many factors, such as the assets and liabilities of the business, its position in the market, and the desires of the business owners for the future.

As with Chapter 7 and Chapter 13, Chapter 11 offers the advantage of collecting all of the company’s creditors together in one place, forcing them to work through the court procedure to obtain satisfaction of their debt.  In Chapter 11, attempts at debt collection are put on hold through the automatic stay while a plan is worked out for repayment.   This process gives the company some breathing room, allowing it to proceed thoughtfully and intelligently toward a more stable financial footing.

If your business is struggling to meet its financial obligations and creditors are threatening legal action, a Chapter 11 bankruptcy may be the solution.  In Los Angeles County or anywhere in Southern California, contact The Los Angeles Bankruptcy Firm for a free consultation.