Chapter 11 commercial bankruptcy filings in North Carolina and other states have risen tremendously. A large portion of the businesses filing for this type of bankruptcy is considered small businesses that lack adequate capital. This particular type of bankruptcy filing is not what many may initially think.
Defining chapter 11 bankruptcy
Chapter 11 bankruptcy is known as a reorganization strategy for businesses that cannot meet their current financial obligations. Instead of the business closing its doors, it remains open under a new court-approved operation strategy. While this type of bankruptcy was only commonly used by large corporations, it’s now being used by many small businesses to keep their doors open.
How filing works
Once a company files for chapter 11 bankruptcy, all collection actions stop. Formally, this is called an automatic stay. This order prohibits creditors from legally pursuing you for a set period of time while you work with the court to restructure your business’s finances. This could stop things like payment requests, collection trials, bank levies, and eviction notices.
Creating payment plans that work
The whole goal of a chapter 11 bankruptcy is for a business to create payment plans that work to repay their creditors in a reasonable manner. Each plan must be agreed upon by the filer, creditor, and court. In many cases, the business downsizes its operations in order to free up money to pay back creditors. Some creditors may agree to discharge a business’s debt.
Filing for a commercial bankruptcy is not something that you should take likely. For those who desire to keep their doors open, a chapter 11 bankruptcy may be the right decision. It’s always advisable to speak with an attorney to understand what’s involved in filing for this type of bankruptcy so that you can make an informed decision regarding the future of your business.