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Chapter 11 Bankruptcy: Is It for You?

Thinking about bankruptcy as a small business owner? Interested in a Chapter 13 type organization to help repay your debts but owe too much money? A Chapter 11 bankruptcy proceeding could be right for you.

The Small Business Reorganization

Chapter 13 allows individuals the opportunity to restructure their debt payments with court assistance, without having to give up their assets. Chapter 13, however, can be limited to $250,000 of unsecured debt and $750,000 of secured debt. Have more debt than that? Chapter 11 could be your answer. Chapter 11 allows reorganization for debt loads up to $2,000,000 and allows you to avoid the more complicated and lengthy proceedings required of larger corporations and businesses. The advantage of a Chapter 11 proceeding is that it allows you to keep operating your business, making revenues, and paying your bills while you restructure your debts. The idea behind Chapter 11 is that an ongoing business that can continue to operate and pay some bills is much more valuable than a business that has to be shut down and have all its assets sold to pay debts.

The Downside

Yes, your business' credit rating will be adversely affected. Any sources that are still willing to give you credit will undoubtedly charge you higher interest rates after the filing of a Chapter 11 proceeding. This can stay on financial records for up to 10 years. Furthermore, from a business standpoint, filing any bankruptcy becomes a matter of public record. Any adverse effect on your clientele, business reputation, and goodwill should be weighed carefully before deciding to file a Chapter 11 proceeding.

Who Is Chapter 11 a Good Choice For?

If you have little chance of paying your company's bills under the present current terms, but have a business that continues to bring in revenue, Chapter 11 could be a good choice for you. Furthermore, if creditors are threatening to sue your company for nonpayment of bills, a Chapter 11 proceeding will stop these lawsuits and require your debtors to set forth their claims with the bankruptcy trustee and work with him or her to set up a reorganization plan that allows you to pay off your debts and keep your business operating at the same time.