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Chapter 11 may save your business

When a business begins to struggle financially, it can be an anxious time for an entrepreneur. Many Pennsylvania business owners may take drastic actions like trying to sell their companies or taking out personal loans to cover their business debts. These steps may serve only to exacerbate the situation. If you own a limited liability company or corporation and you are trying to find a way to deal with your business debt, you may want to seek professional advice before taking either of these steps.

One option you may wish to consider is filing for bankruptcy under Chapter 11. Not only will Chapter 11 offer the chance for the discharge of some of your business debts, but it also allows you the opportunity to continue running the business with a goal of completing the bankruptcy process and bringing the company onto a fresh path to success. Chapter 11 is not a fast or easy process, but it may be appropriate for your situation.

How does it work?

Unlike Chapter 7, which essentially liquidates your assets to repay your creditors, Chapter 11 assists businesses in restructuring their debt by creating a reorganization plan. Either you will come up with the plan yourself or the court will decide for you, but the outcome must benefit your creditors. The execution of the plan will likely stretch over several years and will include such possibilities as the following:

  • You will provide a detailed disclosure of your business’ assets and debts to the court.
  • You may decide to close some operations or consolidate offices to save rent and lower overhead.
  • You may sell some of your company’s assets that do not include your inventory, such as if the business owns property.
  • You will have to evaluate your business finances to find other ways to cut costs and raise revenue.
  • You will outline your plans for repaying your creditors, including the possibility of renegotiating the amount of debt you owe.
  • You will continue to operate your business as efficiently as possible.

You may need court approval to make some of these moves. If you have investors, shareholders or others with a financial interest in your business, these will need your consideration as well as the rights of your creditors. Chapter 11 is quite complex, so it is wise to work closely with your attorney throughout the process. If you are successful, your business will emerge with a bright future ahead.

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