What you must know before filing bankruptcy
for your business
For a small business owner whose finances are spiraling
out of control, corporate Chapter 11 bankruptcy may
seem like the only answer. While corporate Chapter
11 bankruptcy looks like a good solution, most business
owners should consider several other choices before
going to this extreme. If you have explored all other
possibilities and have decided that corporate Chapter
11 bankruptcy is the best choice for you and your business,
here are a few basics you should know.
What Happens to My Business When I File Corporate
Chapter 11 Bankruptcy?
When you file corporate Chapter 11 bankruptcy, your
business continues to run as usual but there is an
important change. You have some new partners. A bankruptcy
court must approve all significant business decisions
you make for your company. Although the court protects
your business from creditors, the goal of corporate
Chapter 11 bankruptcy is keep your business's doors
open while you pay off your debt. Therefore, the bankruptcy
court oversees your business decisions to ensure you
are working toward meeting that goal.
How Do I Form a Plan When Filing Corporate Chapter
11 Bankruptcy?
When you file corporate Chapter 11 bankruptcy, the
judge will order you to create a reorganization plan
that details how you intend to get out of debt. If
you have shareholders, they, along with your creditors
and bondholders, get to vote on your plan. Even if
they reject the plan, the court can still put the plan
in place if it feels it is fair to all involved.
Can My Securities Still Be Traded if I File Corporate
Chapter 11 Bankruptcy?
If you own a publicly traded business, you can still
trade securities even after filing bankruptcy. Because
of the listing standards upheld by the New York Stock
Exchange and the Nasdaq, you probably won’t be
able to be traded in these venues. You can, however,
still be traded on the Pink Sheets or on the OTCBB.
The likelihood of having someone buy securities in
your company after filing corporate Chapter 11 bankruptcy
is low, however, because the risk of loss is so high.
Why Wouldn’t I Want to File Corporate Chapter
11 Bankruptcy?
While filing for corporate Chapter 11 bankruptcy may
seem like the logical response to a failing business,
there are several reasons to avoid it. First, it puts
a huge black mark on your record with your creditors.
You will have difficulty overcoming this. Second, it
destroys your business relationships. Will your business
customers and suppliers view you the same way? Probably
they will not. Third, and most importantly, approximately
90% of businesses that file corporate Chapter 11 bankruptcy
end up liquidating their assets and going out of business
when it comes time to the bankruptcy attorney. So,
be sure to explore every other option available before
taking this drastic step.
Fix
Your Failing Business. Our recommended approach.
|