When a commercial entity is suffering from debilitating debt, but believes there is a way to recover and become profitable again, a Chapter 11 bankruptcy may be an option for consideration. Chapter 11 bankruptcy procedures allow businesses to restructure or reorganize their debt and continue to operate without the heavy burden of past due bills and pressing obligations. But, when filing this legal maneuver, debtors are subject to court supervision.
When businesses consider filing for Chapter 11 bankruptcy, they will need to know that a financial plan has to be submitted to the court overseeing the processes. Not only will the court have to approve the financial plan submitted, but it will also be involved in all major financial decisions throughout the bankruptcy. The court appoints a trustee and forms committees that will be help guide the company in accomplishing the goals and time lines set forth by the different committees. The final financial plan that is constructed by the trustee, the company and its shareholders, and those that make up the committees is also subject to approval by the creditors.
Because Chapter 11 bankruptcy procedures allow for companies to continue to operate, even selling and trading stocks, during the restructuring period, this filing is used by most publicly held businesses that are experiencing detrimental financial woes. A chapter 11 bankruptcy allows the managers and stock holders to keep some control over the day to day business transactions. With a new financial plan and more freedom to accomplish the business at hand, companies in Chapter 11 have a good chance of regaining strength and turning their financial statements into positive documents.
During the restructuring process, the company in question may find it difficult to obtain credit or to negotiate future business dealings. Because of this limitation, often the court and various committees involved will place orders for new creditors to receive priority in payments. This will encourage other businesses to extend credit based on the security offered by the court and restructuring. The order of payment priorities are generally: new creditors, goods and service suppliers, then stock holders. However, the court makes the final decision on what creditors receive payments and in what order of precedence.
The time line for Chapter 11 Bankruptcy procedures can vary. The size of the business filing a Chapter 11 Bankruptcy can determine the amount of time involved. Large companies with complex financial dealings could take several years to reorganize. Smaller businesses have restructured and emerged profitable again in just a few months. In some cases, companies are not able to restructure and these companies ultimately liquidate their assets.
Finding a good bankruptcy lawyer will be crucial for the entire process. A lawyer should be informative and available, helping his or her client understand the legal acts taking place. Bankruptcy attorneys can be expensive and they will receive priority in payment during the Chapter 11 Bankruptcy procedures. Businesses struggling should speak with several law firms that specialize in bankruptcy laws before determining which law firm or attorney will work best with their individual financial picture.
Before filing for legal restructuring, businesses might want to consider alternatives for reorganizing. The new Bankruptcy Reform Act initiated by Congress mandates that individuals and businesses obtain credit counseling before filing for any chapter. Now, companies may want to initiate this incentive before obtaining a lawyer. Finding alternatives to a legal filing could be less expensive, less troublesome, and less damaging to reputations and credit reports. Though much of the stigma associated with a filing no longer exists, there are still consequences.
The Bible teaches individuals and businesses alike to seek godly counsel on important issues. Perhaps the Lord knows that when we attempt to control circumstances on our own, we often fail. When a business is struggling under the weight of heavy debt, seeking the counsel of professionals and other experienced business people can be wise. In business dealings, it will be tempting to take advise that may not be honorable, so seek the wisdom of Christian business leaders who put God's direction as a priority in their counsel. "Where no counsel is, the people fall: but in the multitude of counsellors, there is safety." (Proverbs 11:14) Also, carefully pray over all decisions about the company's financial future. "Only by pride cometh contention: but with the well advised is wisdom." (Proverbs 13:10)
A Chapter 11 bankruptcy filing is not always determined by the owner or owners of a business. In some cases the creditors may force a company to file. Filing a Chapter 11 is the best option to consider after all other avenues of reorganization have been exhausted. This filing will allow employees to keep their jobs and holds promise for future growth to the benefit of employees and stockholders. For more information on laws concerning Chapter 11 bankruptcy procedures, browse the Internet where various organizations explain the entire process involved.
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