If your business is running out of money but not bills, you might need a Chapter 11 commercial bankruptcy. Many business owners and some individuals use this option to restructure their finances. Find out more about the process to determine if it’ll help you get debt relief through the court system.

How Chapter 11 Commercial Bankruptcy Works

Chapter 11 bankruptcy allows you to keep your business active while paying your creditors over time. After filing your petition, you have about four months to develop and submit to the court a plan for renegotiating debt and repaying creditors. Generally, you place each creditor in a certain class, such as secured creditors, equity security holders, unsecured creditors entitled to priority, which may include government agencies that hold tax liens, and general unsecured creditors.

How Chapter 11 Compares to Chapter 7 & 13

Bankruptcy under Chapter 11 is more complex than Chapter 7 and Chapter 13. The commercial bankruptcy process allows your business to downsize and continue operating. Certain business transactions require court approval, such as stopping business operations, entering vendor contracts, and paying attorneys. There is no time limit for Chapter 11.

In Chapter 7, your business shuts down, you don’t pay any creditors, and the entire process is completed in about six months. Under Chapter 13 reorganization, the court approves your repayment plan, which lasts no longer than five years, and discharges any remaining debt.   

Who Benefits From Filing Chapter 11

If you own a large business and want to continue business operations under court protection, you may benefit from filing Chapter 11. Small businesses and sole proprietorships tend to opt for Chapter 13 to reorganize. Filers have court protection from lawsuits, garnishments, foreclosures, and property repossession while achieving financial stability. Creditors benefit too because they receive debt repayments regularly without expensive or time-consuming collection actions. To determine which option is best for your situation, consult a commercial bankruptcy attorney.

With more than 30 years of commercial bankruptcy experience, Donald L. Spafford, Jr., Attorney at Law, in Honolulu, HI, is well-equipped to advise you on the best option for your business’ financial situation. Oahu companies turn to him for help with business transactions and developing repayment plans with meticulous care and professionalism. To schedule a free consultation, call (808) 532-6300, or visit the lawyer online to learn more about how he can help you.