subject: Is Filing A Business Bankruptcy Under Chapter 11 Your Best Option? [print this page] If you own an incorporated business and you need to seek business bankruptcy protection, two options that you may be considering are Chapter 11 and Chapter 7 bankruptcy. In Chapter 7 filing, you will have the federal court that presides over your petitioning appoint a trustee who for all intents and purposes becomes the temporary owner of your assets and your business. With this type of business bankruptcy, you would not have a hand in the business operation because it will be the trustee who would be deciding who to hire, who to fire, how to utilize the business assets to pay off creditors, how to structure the business for the benefit of every shareholder, and many more. Chapter 7 business bankruptcy filing may be your best option (or even your only viable option), depending on your circumstances. Yes, it is still something that is there for your protection and the protection of your creditors. There are certain businesses however, that opt to seek for business bankruptcy protection under Chapter 11.
By filing a Chapter 11 business bankruptcy, you get to retain control and command over business assets, as well as the business operations. In this type of bankruptcy, the court stipulates that your management team will be considered as "debtor-in possession", otherwise known as DIP. The DIP acts like an agent, one who negotiates with your business creditors, with regards to payment terms that are agreeable to both parties. These payment plans may mean periodic partial payments until a debt is paid off to some creditors, while other creditors may agree to take a lesser amount than what is owed to them in exchange for ceasing all legal collection attempts against you. The DIP acts like a trustee appointed by the court, only that he comes from your organization, and not appointed by the court. In fact, no one is appointed by the court. The distinction between a DIP and a court appointed trustee is that the former has the best interest of the business in mind while the latter is heavily concerned in paying off creditors.
Whereas Chapter 7 business bankruptcy filing is about liquidation, Chapter 11 filing is "only" about restructuring. With Chapter 11, business operations are restructured to find the best solution that will allow you to pay debts in a timely manner. You may need to temporarily, or completely, lay off workers, perhaps even excise entire departments. The DIP will oversee this process so that whatever caused the gross inefficiencies in spending that made it so that you could not pay your creditors in a timely manner is removed from or utterly changed within your business. The federal court presiding over your Chapter 11 business bankruptcy petition will necessitate you and your creditors to make regular progress reports regarding the whole process.
In the event that some or all of your creditors remain unhappy with the actions of your DIP, they can petition the court to change the DIP with its own appointed agent. This is not at all to your business' advantage. Because of this, it is just proper for you to seek the services of an attorney who has the expertise in business bankruptcy law if you are thinking of filing for Chapter 11. He will be regarded as a "Debt Relief Agent". Your lawyer can give the proper advice to your DIP, and will be able to negotiate with creditors. That way, filing for Chapter 11 business bankruptcy would not result to your business' destruction.
If you see that business bankruptcy protection is already required by your business, it is best that you seek out the help of an experienced bankruptcy lawyer who could give you the proper advice with regards to the filing option that would be suitable for your business. Just the same, there is a possibility that you might find another solution aside from filing for bankruptcy. Filing for business bankruptcy should be regarded as a last resort when searching for ways to save your business.
