A Chapter 11 Business Bankruptcy (reorganization) is the process by which a business may declare bankruptcy but continue to operate the business under the supervision of a trustee and the US Trustees office. The purpose of the reorganization through the Chapter 11 bankruptcy process is to allow the business to reorganize and more effectively pay their creditors.
You can think of it as a “reboot” for your business and the Chapter 11 purpose is to bring to bring it back to life. Chapter 11 is available to any type of business, including sole proprietorships, limited liability corporations (LLCs), and corporations. But the problem is often that the business files too late after it becomes impossible to reorganize and make a profit. If the corporation cannot reorganize and make a profit the Chapter 11 is converted to a Chapter 7. The Chapter 11 cannot fail to file reports or bog down and not make substantial progress.
Chapter 11 Business Bankruptcy Information
The common occurrence in Chapter 11 small business bankruptcies is that the entity files too late. You cannot file a Chapter 11 successfully after the business assets or ability to earn a profit are lost. Most often, businesses file for Chapter 11. However, individuals with large amounts of debt can also file Chapter 11. I would use the Chapter 11 option when I have a client that has debts that are too high for Chapter 13. You can often sell off and force the sale of some properties which you cannot do in a 13.
If you are above the debt limits a debtor can be forced into filing Chapter 11 or Chapter 7. Chapter 13 is limited to about $400,000 in unsecured debt and $1,400,000 in secured debt. If you can reduce the debt by selling mortgaged properties, a clients can file as Chapter 13 instead. Chapter 11 cases often obtain the same or better results by filing the case as a Chapter 7 or as a Chapter 13.
Chapter 11 works very similarly to Chapter 13. But Chapter 11 has a very high failure rate because reporting requirements and costs are so high. Chapter 13 cannot be filed for corporations and Chapter 13 isn’t designed to manage large cases. But Chapter 13 is quicker, easier and cheaper than a Chapter 11 bankruptcy. Therefore, if you are considering Chapter 11 business bankruptcy in Kentucky always check first to see if Chapter 13 or Chapter 7 is possible or more appropriate for your circumstances.
Using Chapter 13 in Lieu of Chapter 11 Business Bankruptcy
Chapter 13 can only be filed for an individual and not a corporation but often if the business owner files a Chapter 13. He can effectively handle the business debts of a proprietor, or corporation when the sole owners are an individual or couple.
Using Chapter 7 in Lieu of Chapter 11 Business Bankruptcy
Additionally, many people use Chapter 7 for a business and then reopen in a new business name to continue operation. After filing Chapter 7 and closing your old business a new business opens and simply operates in a new or restructured form. This allows the business to let unprofitable properties that don’t pay rent and costs of operation close and keep open other units that are profitable.
The key is to take a hard look at cash flow to determine if a business is profitable. Then, if the business has a negative cash flow it must close or restructure into something that is profitable. Often choosing a Chapter 7 or Chapter 13 for the Kentucky business owner is better than Chapter 11. This is because of the difficulties and high costs of a Chapter 11 and the high likelihood that the US Trustee will require any business to be converted to a Chapter 7 if it cannot meaningfully earn a profit and repay creditors after the Chapter 11is filed.
Resources for Bankruptcy
Kentucky SBRA Small Business Bankruptcy Checklist
Other Related Information
Kentucky SBRA Chapter 11 Bankruptcy Case
Bankruptcy Filing Debtor Education and Credit Counseling Certificates Late
Maxing Out Credit Cards and Later Filing Bankruptcy
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905
