Business Bankruptcy FAQs
If you are considering business bankruptcy, your company is in deep trouble and making payroll is almost impossible. You have probably heard about business bankruptcy, and you may wonder if this is the right course of action for your firm.
To help you understand business bankruptcy better, we decided to develop this web page to answers some frequently asked questions about the topic.
What is Chapter 11 business bankruptcy?
Chapter 11 is a form of business bankruptcy that allows you to continue running
while you work to reorganize your finances and balance. Typically, the current
management team stays in control of daily operations during the business bankruptcy
proceedings.
The best part of Chapter 11 is the judge offers an automatic stay immediately after you file. This prevents creditors from seizing their assets. The major downsides of Chapter 11 are the legal costs can be large (over $100,000 and sometimes into the seven figures) and the business bankruptcy judge has control over the large decisions.
Who pays the fees for the Chapter 11 business bankruptcy?
I hate to break this to you, but your firm pays all legal fees including creditor
attorney fees and court fees. Because these are so high, many judges decide
to convert Chapter 11 business bankruptcies into Chapter 7 liquidations. In
the judge’s view, there is no way that firm can pay the fees and keep
running.
What is Chapter 7 business bankruptcy?
This is a liquidation proceeding. You file for Chapter 7, the court appoints
a trustee to liquidate your firm, and your creditors get the money from
the liquidation, after paying the trustee of course. With Chapter 7, you
just file and walk away.
Are there any alternatives to Chapter 11 and Chapter 7?
Chapter 11 and Chapter 7 business bankruptcy are not good choices. In either
case, you will likely lose control and the court will liquidate your firm.
The best alternative is to make every effort to turnaround your firm.
As part of your turnaround, you can restructure your debt through one-on-one negotiations with your creditors. This has the same advantages as filing without the loss of control and high costs.
The best manual of business bankruptcy alternatives is The Insider Secrets to Saving Your Business: The Step-by-Step Turnaround Guide by Dan Betts. This guide gives you a detailed explanation on how to turnaround your firm.
You should start reading this manual today if possible. Remember the longer you wait to fix your firm, the lower the chance that you can save it.
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