For those businesses that are struggling with debt but have the means to continue operation, Chapter 11 and Chapter 13 are the two most popular business bankruptcy options. With the opportunity to restructure debts, Chapter 11 and Chapter 13 provide many similar benefits. However, while any business can file for a Chapter 11 bankruptcy, certain requirements must be met for Chapter 13. Debt limitations and a regular income can make Chapter 13 difficult to qualify for. If you're an individual, partnership, joint venture, limited liability company, or a corporation, a Chapter 11 business bankruptcy could be your best option.
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The Perks of a Chapter 11
Provisions of a Chapter 11 bankruptcy allow businesses to experience the benefits of debt relief without having to liquidate their assets or shut their doors. Working with a bankruptcy lawyer emphasizes the benefits that Chapter 11 has to offer, such as:
• Remaining in operation. Unlike a Chapter 7 filing, Chapter 11 reorganizes debt and allows the company to operate as usual.
• Protect Assets. Since the debt is restructured and will be paid back over time, there's no need for the assets to be liquidated or the funds distributed to creditors.
• All debts are dischargeable. Whether it's back taxes, debt pertaining to rent, or legal expenses, everything is on the table under a Chapter 11 filing.
Differences in Chapter 11
• No creditors' committee. A Chapter 11 filing can be a very expensive process for the business, since creditors can assemble a committee to represent them at the case - all at the expense of the business. However, the bankruptcy court can protect the business by ordering that no committee can be appointed. Working diligently with your bankruptcy lawyer can also provide further protection.
• Deadline flexibility. While small businesses only have 300 days to propose a Chapter 11 plan, there is generally no deadline as long as the plan is submitted in a reasonable time period. This is in stark contrast to other business bankruptcy options, where deadlines are of utmost importance. Despite the lack of a stringent timeline, a bankruptcy lawyer will guide you through the process in a timely manner, ensuring that your plan is feasible and well presented.
• Disposable income. While a Chapter 13 requires the debtor to turn over their disposable income to a trustee during the commitment period, there is no such requirement for a Chapter 11 filing. However, since the debtor can still keep their disposable income, the payment plan they determine must at least equal the amount of said disposable income.
If you're unsure whether your business should file for a Chapter 11 or Chapter 13 business bankruptcy, be sure to seek the advice of a bankruptcy lawyer to help streamline your petition.
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