Chapter 11 bankruptcy can help struggling businesses through a challenging time. Chapter 11 bankruptcy provides a bankruptcy reorganization resource to struggling businesses that have heavy debt burdens but want to remain in business and get the business back on its feet.
Chapter 11 bankruptcy involves the development of a reorganization plan with the help of the bankruptcy court. The process provides an opportunity for the struggling businesses to renegotiate leases and contracts and seek additional sources of capital to pay down debts. Creditors have an incentive to work with the business in a Chapter 11 bankruptcy because they will generally fair better and receive more through that process than if the struggling business goes through a Chapter 7 liquidation bankruptcy.
Creditors are placed into different categories during the reorganization bankruptcy process. Once the reorganization plan is confirmed by the bankruptcy court, which will generally be done if the reorganization plan is reasonable, the next step is for the business to abide by the reorganization plan. If the reorganization plan is followed in good faith, the business will enjoy a debt discharge and can focus on returning to profitability in the future.
Chapter 11 bankruptcy is an option to help get a struggling business back on track which is why it is an important option to consider and be familiar with. Different bankruptcy options are available for different situations so struggling businesses should take a look at their options and decide on the best one for the needs and goals of the business.