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A Quick Review of Chapter 11 Bankruptcy

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When bills mount and the future is uncertain, a business owner must consider the option of filing for bankruptcy. A business owner can file for Chapter 7 and liquidate assets in order to satisfy creditors. Usually, the business’s doors must close and the staff are out of their jobs. When a business owner believes that the value of a business is more valuable than the sum of its assets, Chapter 11 may be the right option. Chapter 11 bankruptcy is a reorganization plan that functions to increase net cash flow. Through the process of Chapter 11 bankruptcy, a business may be able to rally and emerge as a profitable entity.

When one files a Chapter 11 bankruptcy petition, it triggers an automatic stay, prohibiting creditors from pursuing collection of outstanding debts or contacting the business. The petition should include a list of assets and liabilities, a list of outstanding contracts or leases, and a financial statement.

A business will then create a reorganization plan within 120 days that keeps the business operating on a long-term basis. This usually means restructuring debt through the cancellation of contracts or leases that have yet to be fully performed or executed. If the creditors oppose the plan, they are welcome to provide a plan of their own. The bankruptcy court will have the final say. Once a reorganization plan is approved, it must be confirmed at the bankruptcy court hearing. If the business’s reorganization plan is favored by creditors, the confirmation should be simple. If major objections are heard and no plan is approved, the court can convert the case to a Chapter 7 bankruptcy case, liquidating the business and closing its doors.

When a business faces bankruptcy, it is important to consult with an effective and experienced bankruptcy attorney to guide you through your options and help you develop a reorganization plan that satisfies creditors and bankruptcy courts so that your business can get a second chance. Contact Cohn Lifland today to discuss the options that can put your business back on track.

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