Chapter 11 bankruptcy is not for everyone, nor is every one eligible to use this method for debt reorganization. This part of the debt reduction code was put into place primarily for small and large businesses.
The businesses that may use this opportunity to reorganize their debts fall under three categories:
Corporations, LL C's (Limited Liability Company)
Partnership
Proprietorship
Corporations, limited liability companies and partnerships, are separate from the stockholders and partners involved with them in the business. This classification permits them to file for reorganization without the participation of the others involved in the business. It is also possible for them to take advantage of other forms of debt reduction, such as utilizing Section 7 of United States Code Title Eleven.
A sole proprietorship is owned by a single owner. Which means that all assets and debts of that particular business or intertwined with the owners personal non business assets and debts. Therefore the proprietor may also file under different sections of the debt reduction code. The sole proprietor may take advantage of section 13 Title Eleven USC (provided certain debt level has been reached in the business) and section 7 of the United States Code Title Eleven. It is strongly recommended that qualified legal council should be consulted prior to the final decision being made.
The chief executive officer or the principal of the business entity must have the determination to follow through with a reorganization of the companies assets and debts. Lack of determination to follow through by the principal has been the reason that most business legal reorganization plans fail. The following is a short list of the problems and advantages of reorganization the principal will face.
1.The owner must know what caused the debt situation that the business is currently in. In addition the owner must be able to determine what the results of reorganization would be and if in fact it would be advantages to reorganize or liquidate.
2.It is possible that reorganization will provide the business with badly needed cash flow to put the business up for sale as a going concern.
3.Reorganization can protect the business while expensive leases on equipment and real estate may be renegotiated or even sold off.
4.Reorganization cannot create a new market place. In addition if the skills to mange the business are not present when the business first started they will not be created by the reorganization.
Chapter 11 bankruptcy is only as good as the owner/principals involved in the business.
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