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.
Our
recommended business turnaround procedure. Step-by-step.
Prevent bankruptcy.
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