As a business owner, you want to keep your doors open for as long as possible. After all, you worked hard to bring your vision to life and just because you’ve taken on more debt than you can manage doesn’t mean your business deserves to close its doors. Filing for Chapter 11 bankruptcy with help from a Wisconsin business bankruptcy attorney can help you get your debt back under control. Let’s take a look at what this form of bankruptcy is, the types of debt it can discharge, and the pros and cons to keep in mind before you file.
What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a way to reorganize your business’s debt with supervision of your local bankruptcy court without forcing you to close your business. This form of bankruptcy effectively lets you create a debt repayment plan—often with the help of your Wisconsin business bankruptcy attorney.
Once the plan is approved by the court, you’ll make payments according to that repayment plan until your debts are repaid.
To qualify for this form of bankruptcy, you must be able to prove that you can make the minimum required payments and that your business is still earning enough money to stay solvent. If your profits are low or non-existent, you may want to consider a different form of bankruptcy.
The Benefits of Filing for Chapter 11
Here are a few benefits of filing for Chapter 11 bankruptcy instead of another form:
- You can keep your doors open: This method doesn’t require you to sell your business or close your doors. That means your employees keep their jobs and your business keeps delighting clients and customers.
- You enter into an automatic stay: Automatic stays happen as soon as you file for bankruptcy and make it illegal for creditors to hound you for repayment.
- You may get better rates: The repayment plan is a negotiated plan between you and your creditors. This means you may be able to reduce what you owe or lock in lower interest rates on certain loans and lines of credit.
Your Wisconsin business bankruptcy attorney will be able to explain the benefits and how they apply to your situation in more detail during your consultation.
The Potential Downsides of Filing for Chapter 11
Though Chapter 11 has clear benefits, it’s not the perfect solution for every business. Here are some of the potential downsides of filing for this type of bankruptcy:
- It takes time: Your bankruptcy case won’t be settled until you repay your debts. This can take several years depending on the terms of your repayment plan.
- It will still hurt your credit: Any type of bankruptcy can hurt your business’s credit score, and Chapter 11 is no exception. This may make it harder to get loans in the future.
- You’ll still have to make payments: Since Chapter 11 doesn’t forgive your debt, you’ll have to make regular payments on what you owe. This can eat into your profits and cash flow during slower business cycles.
When Is Chapter 11 the Right Choice?
Ultimately, Chapter 11 bankruptcy can be a great choice for businesses that are still making a profit but can’t afford their current debt payments. It allows you to keep your doors open and makes it possible for your company to continue growing without struggling under crushing debt repayments.
However, if you’re looking to completely discharge your debt and are no longer interested in running your business, filing for Chapter 7 may be a better choice. This will give you a clean financial slate and let you start over without worrying about paying your creditors. Under Chapter 7, many business debts can be discharged entirely, but the bankruptcy court will take possession of your assets to settle those debts.
Speak With a Wisconsin Business Bankruptcy Attorney
If you’re considering filing for Chapter 11 bankruptcy, make sure you understand the process in detail. Contact the team at Kerkman & Dunn to schedule a free consultation with an experienced Wisconsin business bankruptcy attorney.
