There are a lot of common misconceptions when it comes to business bankruptcy. One of the most common is surrounding Chapter 11 bankruptcy. Often, when discussed in the news or elsewhere, it can have a negative connotation surrounding it. And while it isn’t a position businesses necessarily want to be in, there are many benefits to Chapter 11 bankruptcy that are appealing to both businesses and their creditors.
Benefits of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is often referred to as debt reorganization, as that is essentially what is happening. There is a structure, timeline, and plan to solve the debts that the company may owe.
The most favorable part of chapter 11 bankruptcy is that it allows the business to continue running and making profits while it is taking place. This is essential, as the goal is to restructure the debt of the company, retain profitability, and come out the other side as a successful business set up for now and the future.
After a business files for chapter 11, a bankruptcy court will issue a stay that stops debt collectors from collecting payments for some time. During this time, there is work done on a repayment plan for these debtors. Having anassist with the filing is recommended.
During the process, there is an effort to negotiate contracts, leases, and any other debt the business may currently have. These repayment plans are often beneficial for both sides, as the business gets some time to figure out payment, and the creditor gets a plan for how it will recoup its money.
The order in which creditors will get their money back is also decided during the proceedings. Priority is often given to employee wages and state or federal taxes and goes down the list from there. The idea is that priority entities such as the actual workers of the company and the local and federal governments get their owed payments before any other debts are prioritized.
All of these plans will need to be approved by the court before becoming final. Once the plan is confirmed, the business will be required to make payments as outlined. Again, having an attorney help with the process will help companies to ensure success in this endeavor.
Disadvantages of Chapter 11 Bankruptcy
One of the leading detractors for businesses when it comes to chapter 11 bankruptcy is unavoidable, and that is the negative press. The public knowledge that bankruptcy was filed gives a certain feel to potential customers, which could hurt the business financially when it desires to continue to make profits.
In addition, while reorganization of debt is often positive for businesses to stay afloat, they may agree to terms with a plan that makes it very difficult or impossible for them to repay their debts. This can happen when businesses rush through a bankruptcy proceeding to get a stay put on creditors and continue to operate. Again, having an attorney guide the company through the proceedings is the best way to avoid this pitfall.
Chapter 11 bankruptcy can also have a cost associated with it, which the business may have trouble paying. But, when the cost is attorney fees, it’s often a small price to pay for the long-term renegotiations and payment plans that arise from the proceedings.
Filing for Chapter 11 Bankruptcy in Milwaukee and Wisconsin
If your business needs to reorganize its debt, getting the professionals at Kerkman & Dunn involved can avoid any potential issues that would. The Milwaukee business bankruptcy firm has a wealth of experience reorganizing debt and putting businesses in the best spot to remain open and succeed into the future. Give the a call today at 866-386-4759.