There Are Strategies On How You Can Avoid Filing For A Chapter 11 Business Bankruptcy

Chapter 11 bankruptcy is usually called as business reorganization. It offers a business more time to repay its debts. In this course of action, the business needs to submit to the bankruptcy court, a debt consolidation plan, which needs to be accepted by majority of the creditors, which would then be carried out by the business to the letter. If a business requires reorganization, and if its owner doesn’t want to file for Chapter 11 bankruptcy, then he can think about an out-of-court negotiation in lieu of business bankruptcy. Here’s what an out-of-court settlement entails:

1. An out-of-court deal can only work if the business is serious and the creditors are willing. If there are two or three creditors who aren’t taking part, it is already enough to kill the negotiation.

2. Before contacting creditors, the business owner must first make a plan that shows how creditors will be paid back by using cash flow, new loans and issue of equity to interested parties. This means that the business owner must make sure that his business is sustainable enough to generate cash flow, attract investment and obtain loans to pay off existing creditors. The plan must be solid and should conclusively prove how the business will turn around and repay its debts. The business owner should seek the services of a reputed and experienced financial adviser to draft the plan.

3. One of the best ways to finish the out-of-court settlement is to look for a creditor that will be a replacement. But, that could be hard if the owner is facing business bankruptcy in the first place. A replacement creditor comes with costs and strings attached, so every business owner must be cautious.

4. The next step is to employ an attorney who’s reputed and experienced in negotiating with creditors. A lawyer who represents business owners in Chapter 11 business bankruptcy cases should be skillful enough to deal with creditors.

5. The hardest part is the next step, which is the actual negotiation with creditors. There are different kinds of creditors - priority, secured, semi-secured and unsecured. Each class of creditors must be satisfied. The business owner must realize that any of the creditors can hit the panic button during the negotiations. Lawyers basically negotiate on a one-to-one basis with secured creditors, and they secure forbearance agreements. The moment it is in place, it now becomes less difficult to negotiate with unsecured creditors. A meeting of unsecured creditors is called and facts are placed before them along with the restructuring plan. They are informed of the consequences of a Chapter 11 or Chapter 7 bankruptcy. The unsecured creditors are requested to lessen their debt and take a one time settlement, or make it possible for more repayment time.

6. An out-of-court settlement can work as well as a Chapter 11 business bankruptcy. However, the biggest drawback to such deals is that these are not binding. In a Chapter 11 business bankruptcy, the court officially stops creditors from making collection attempts or filing lawsuits. No such protection come built into out-of-court agreements.

Contemplating Chapter 11 Business Bankruptcy - Understanding When Is The Perfect Moment

Chapter 11 business bankruptcy is also referred to as business reorganization. It consists of filing a reorganization plan (along with specified financial documents) with a bankruptcy court. The court calls for a meeting of all the creditors who need to vote on and accept the reorganization plan by a 3/4th majority. The reorganization plan is carried out by the business, and once the bankruptcy ends, the business becomes free from debt.

Chapter 11 Business Bankruptcy Warning Signs:

- When the money that you have withheld for taxes is already being used. That money needs to be paid to government, however, if you already use it for business, it signifies that you are cash-strapped.

- Whenever you keep stretching payments to vendors for a long period of time, not able to pay vendors punctually, or when you are already anxious for credit and keep on switching vendors.

- When serious instances that could affect the business happen such as a natural disaster, death of a partner, or embezzlement, and the like.

- Inability to repay secured debt installments on time or unable to repay them anymore.

- When your business has one or two customers and they declared business bankruptcy.

Business owners tend to wait for better times and expect their creditors to listen to them, which is in fact one of the biggest mistakes they could make. Creditors want repayment of debts and will do anything to get their money back. As soon as the warning signs show up, a business owner should appoint a Chapter 11 business bankruptcy lawyer.

A business can be assisted in exploring other possible options aside from bankruptcy by hiring a lawyer. For example, the lawyer would take a look and analyze the situation, then make suggestions such as a debt-for-equity swap or a debt restructuring exercise. If an attorney is not hired by the business owner, then he is surely digging a much deeper hole to bury himself in.

There is no simple business bankruptcy. Child support, taxes, alimony, etc, which are classified as priority debts would have to be paid, and if the business owner's personal property has to be sold just to repay these, then it has to be done. When it comes to priority debts, the law does not take pity. So if priority debts are the cause why a business is struggling, then a Chapter 11 business bankruptcy is not the option but a Chapter 7 bankruptcy.

Once priority debts are met, secured creditors come next, followed by semi-secured creditors and eventually unsecured creditors. In a Chapter 11 business bankruptcy, majority of these creditors ought to agree with the reorganization plan. Once the plan is agreed upon, the business owner must carry it out to perfection. If he does not, the Chapter 11 process fails and creditors can take their own legal steps to get back their money.

Smaller sized business owners seldom consider bankruptcy except when there are serious pressures. If your company has fallen behind with creditors and you are thinking about business bankruptcy, there are other solutions like business debt consolidation or debt management. Look at all options before filing for different types of business bankruptcy.