Filing for Chapter 11 bankruptcy can help businesses keep their doors open while they work on repaying their creditors. This option can be a good choice for business owners who know that the company is profitable, but just got behind on their debt. While Chapter 11 bankruptcy offers several benefits, there are still some downsides that Wisconsin business bankruptcy attorneys want you to know about before you file. Here are a few downsides you need to prepare for if you choose to file for Chapter 11.
Loss of Privacy for Business Owners
When you file, you’ll need to provide the court with detailed financial documents showing the overall financial health of the company. This includes bank statements, loan statements, credit card statements, and more. Unfortunately, all of that financial information will become part of the public record, meaning anyone can find out about your bankruptcy, your debt, and your business’s financial outlook.
Extended Settlement Time
Chapter 11 bankruptcy can take longer than filing for Chapter 7 or Chapter 13. This type of bankruptcy can take as long as five years to be approved and settled. For some business owners, dealing with the stress of bankruptcy for that length of time can be more than they want to handle. If you’re worried about how long it will take for your business to get through bankruptcy, speak with your attorney. They’ll help you understand the pros and cons of each option so you can choose the right form of bankruptcy for your needs.
No Discharging of Debts
When you file for Chapter 7 bankruptcy, many of your debts can be discharged, meaning you’re off the hook for repaying them in full. However, you’ll typically lose much of your business’s assets and will have to close your doors. With Chapter 11, you won’t have your debts discharged. Instead, you’ll make payments on your debts based on the agreement determined by the court. Those payments will still put a burden on your business’s operating budget and must be repaid according to the terms of your agreement.
Strict Profitability Requirements
Under Chapter 11, you must be able to prove that your business is profitable enough to afford the payments to your creditors as well as your ongoing operating costs. If your company isn’t profitable, you may not be eligible for this type of bankruptcy.
Court Oversight and Approval
Though you may be able to keep running your business, the court will have the final say over any future loans you take on or any assets you want to sell to help cover costs. This can leave you feeling like you’re not in control of your business. But there’s good news. That oversight is temporary. As long as you make the required payments on time and in full, you’ll eventually pay off your creditors and may be able to regain control of your business.s
Overall Cost
Filing for Chapter 11 typically costs more than filing for Chapter 7 bankruptcy. However, you may be able to offset those higher costs by continuing to run the business. The goal of Chapter 11 bankruptcy is to help businesses continue their operations while still satisfying their creditors. You’ll have a higher upfront cost, but you’ll also have the potential to get your business back on track and growing in the way you want.
Contact a Wisconsin Business Bankruptcy Attorney Today
Chapter 11 bankruptcy isn’t for everyone. But if you’re looking for a way to keep your business open while still paying down your debts, it can be a good choice. But to make sure you’re choosing the right bankruptcy type, you’ll want to speak with a Wisconsin business bankruptcy attorney.
At Kerkman & Dunn, our team understands that filing for bankruptcy can be stressful. We’ll help you evaluate your options so you can make the best choice for your business. Contact us today to schedule a free consultation.
