Chapter 11 business bankruptcy is otherwise known as business reorganization. It involves filing a reorganization plan (along with specified financial documents) with a bankruptcy court. The court calls for a meeting of all the creditors who must vote on and approve the reorganization plan by a 3/4th majority. The plan is then implemented by the business and once the plan is executed, the business becomes free from debt. Chapter 11 business bankruptcy warning signs:
-When the money that you have withheld for taxes end up being used for business. Such money must be paid to the government, but if you use it for business, it means you are cash-crunched.
-When you keep on switching vendors because you are looking for one that can give you credit, or when you can no longer pay vendors in a timely manner and would just keep on stretching payments for an extended period.
-Whenever the business is affected by a serious situation, such as the death of a business partner, a natural disaster or an embezzlement.
-When you are always late or unable to repay secured debt installments.
-When you only have one or a couple of customers and they have declared bankruptcy. One of the biggest mistakes business owners make is to wait for better times and expect their creditors to listen to them. All creditors want their money and will stop at nothing to get it back. A business owner must appoint a Chapter 11 business bankruptcy attorney as soon as the warning signs emerge. You will be able to explore different options, and not just bankruptcy, when you hire an attorney. The lawyer, after having analyzed the circumstances surrounding the business, will be able to recommend a debt-for-equity swap or debt restructuring. If a lawyer is not appointed by a business owner, then he is courting more trouble. No business bankruptcy is easy. Priority debts like child support, alimony, taxes, etc., must be paid and if the business owner’s personal property has to be sold to repay such loans, so be it. When it comes to priority debts, the law finds no mercy. So, if a business is struggling because of its priority debts, then a Chapter 11 business bankruptcy may not help – the business owner may have to opt for Chapter 7 bankruptcy, which is business liquidation. After priority debts are satisfied, it is the turn of secured creditors, semi-secured creditors, and unsecured creditors, in that sequence. A majority of these creditors have to agree to the business owner’s reorganization plan in a Chapter 11 business bankruptcy. Once the plan is agreed to, the business owner must execute it to perfection. If he does not, the Chapter 11 process fails and creditors can take their own legal steps to recover their money.