If your business is struggling financially, you may be considering filing for bankruptcy. Naturally, it’s wise to review the various types of bankruptcy before deciding which to pursue. While many people are familiar with Chapters 7 and 13, few realize Chapter 11 could be a viable option. Here, you can learn all about this lesser-known alternative to Chapter 13. 

Understanding Chapter 11

Who Can File Chapter 11?

Often called reorganization bankruptcy, Chapter 11 is primarily for business entities because there is no limit to the amount of debt it can discharge. However, individuals who have too much debt to qualify for Chapter 13 may pursue Chapter 11, too. Although it doesn't discharge debt immediately, like Chapter 7, Chapter 11 can provide the breathing room you need to catch up financially so you can retain your most valuable assets or keep your company afloat. 

How Does Chapter 11 Discharge Debt?

When filing for bankruptcy, you must file a petition in court. If you’re filing on behalf of your business, you may continue operations as the debtor in possession; however, you’ll have to seek approval before completing any major financial transactions. Within four months of filing, you must propose a viable plan for restructuring debts and paying back creditors. In some cases, this deadline can be extended to 18 months.

When the petitioner is a business, reducing the scale of operations—at least temporarily—will likely be part of the plan to free up cash flow for making payments. Once the court approves the plan, it will go into effect, and all lenders will be paid back based on its reorganized terms. Most of these arrangements end within six months to two years, although there is no deadline.

If you’re thinking about filing for bankruptcy, turn to Greene Law PC for a financial evaluation. Located in Farmington, CT, this law firm uses resources at their disposal to secure the most favorable outcomes possible. Backed by 25 years of experience, these seasoned lawyers specialize in bankruptcy, estate planning, family law, and commercial and consumer finance. To browse their areas of practice, visit their website. To determine whether filing for bankruptcy is right for you, call (860) 676-1336.