What are the advantages to Chapter 11 bankruptcy?

If your business is facing significant debt, it may seem like it will never surface as a productive entity. This is especially true if you expanded too quickly and now find yourself facing lease issues in addition to normal business debt.

Yet, it may not be too late for your business. In fact, many businesses are able to start anew by filing for Chapter 11 bankruptcy. For example, if your business did expand too quickly but your expansion was structured properly, you may be able to avoid liability on the leases through a Chapter 11 bankruptcy. This is because damages are capped in Chapter 11, allowing debtors to avoid most liability.

Chapter 11 bankruptcy is also a good option for business owners who are considering selling the business rather than reorganizing it. Without Chapter 11, a business may be foreclosed upon or receivers might be put into place who will rack up large bills. In Chapter 11 bankruptcy, however, the business owner stays in command of the business, allowing him or her to decide whom to sell the business to. For example, you may decide to sell your business to someone who would sell it back to you. You can do this through Chapter 11 bankruptcy.

For businesses who would like to stay viable without a sale, Chapter 11 plays an equally important role. It allows business owners to stay in possession of the businesses as debtors-in-possession and detail a plan for reorganization.

Chapter 11 is perhaps at a disadvantage in only one situation: Where a debtor wants to close up shop and liquidate business assets to pay back debts. In this case, a business owner should consider Chapter 7 bankruptcy.


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