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Chapter 11 bankruptcy may help small businesses

Consumers often use Chapter 7 or Chapter 13 bankruptcy to seek debt relief, but small business owners have another option. They can use Chapter 11 bankruptcy to help their company minimize financial pressures, overcome debt and work toward long-term success.

An opportunity for debt relief can be helpful for small business owners because they are often dependent on the local economy. If there’s a downturn or a recession, it can impact their bottom line and the budget, even though the business has not made any mistakes. Chapter 11 can be useful for companies that need to weather unexpected changes in the economy without closing their doors.

How does it work?

If you are a small business owner and you are in need of debt relief, know that the goal of Chapter 11 bankruptcy is to help your business stay open. Ideally, you’ll get through this process with minimal remaining debt, and you will not have to liquidate all of your assets or close the business – as many people assume. Instead, Chapter 11 bankruptcy is all about reorganizing that debt so that it works for the business.

The first step in the process is creating a reorganization plan. This plan is generally crafted by a business owner with the assistance of a skilled lawyer. But the creditors are not excluded from this process. They may have the option to vote if it seems like the re-organization plan is going to impact what they are owed. In other words, the hope is to find a solution that works for everyone. Once the court confirms this reorganization plan, then the process can move forward.

The benefit of keeping assets

In this sense, Chapter 11 can be very beneficial for companies and business owners because they don’t have to liquidate all of their assets. Many people view bankruptcy in this light, but that is what happens under Chapter 7 bankruptcy, not Chapter 11. After all, if a business lost all of the assets that it controls, it would have to close its doors. Chapter 11 helps to create a viable financial future and a pathway toward success for the company. It just has to reorganize the business’s finances so that the debt works in the current economy.

If you are a business owner, it’s important that you understand how the process works and what legal options you have available to you. By seeking legal assistance now, you can potentially help your business remain operational later.