Many times in the life cycle of a partnership or corporation, there are times of declining profits, escalating costs, contract that fall through or a myriad other of the ups and downs of business. To keep a business viable and quite literally to keep its doors open, they may need temporary protection from creditors. Creditors are not, as a rule, a group of businesses given to waiting in line. They each want to come first and will put deep and painful pressure on a debtor business to assume that position.
How Chapter 11 Bankruptcy Can Help a Business
To keep a business open and operating during these times, a business may be well served to seek protection of the courts from these creditors. A Chapter 11 of the United States Bankruptcy Code allows a partnership or corporation to remain in business, rather than be liquidated and closed, a Chapter 7.
The debtor company will propose a schedule of repayment to the court, which will either approve or modify it. If the debtor company does not propose this plan within a certain time limit, the company’s creditors may. The court will examine the state of the business, including all their financials, contracts and proposed plans. They will look at how much business the debtor will be conducting, the assets they have and will require for conducting business and the debts they owe.
A Chapter 11 is very much like the Chapter 13 for individuals. It allows protection from legal actions, suits and repossessions and modifies contracts so that the debtor company will have a reasonable chance to repay its creditors. Not all debts can be discharged by bankruptcy. No bankruptcy scenario will allow a debtor avoid paying alimony, child support, taxes, educational loans, criminal restitution orders, etc.
How the Reorganization Works
The debtor must file a plan of reorganization within 120 days of initial filing. Only the debtor can file this plan until this time and any subsequent extensions are elapsed. After that time, the creditors may file their own plan for the court to consider.
In a bankruptcy involving a partnership, the partners’ personal assets can be used to pay creditors. The partners may be forced to file for bankruptcy protection.
In the reorganization process, the debtor must make the agreed-upon payments. Existing contracts will be modified by the court to fit the terms of the repayment plan.
After the debtor company has made all the payments, they petition the court for a final decree, which closes the case. At that point, the company emerges from bankruptcy, hopefully stronger and more likely to be successful.
Retain Experienced Counsel
Chapter 11 bankruptcy is a complicated process and must be filed correctly to maximize the protection of the filing company. To be certain that you receive the best representation possible, call The De Leo Law Firm, LLC in Mandeville, Louisiana at (985) 727-1664, for an experienced bankruptcy law firm who can help you.