If you have followed Donald Trump at all, you may know that he has filed for bankruptcy. That is because everything needs to be the most luxurious, biggest, and greatest. From his casino-hotel business that declared Chapter 11 bankruptcy to the four other times he has filed since 1991, Trump’s experiences just go to show that even the richest people in the country have to file for relief.
Even the country’s most successful businessmen sometimes need to use bankruptcy as a tool for protecting their business, as well as their personal finances, during financial downturns and economic issues. That is what Chapter 11 and Chapter 7 were designed for – to help those who need relief.
Filing for Chapter 11 – What You Need to Know
Chapter 11 was designed for situations where businesses and consumers need to remain in operation, but reorganize their debts and work with creditors in order to reduce and/or eliminate that debt. The idea for businesses is to allow them to provide employees with an opportunity to continue working and push the business to generate enough cash flow to eventually get out from under their debts. Chapter 11 is all about working collaboratively with creditors and the courts to find a debt solution.
More businesses will use Chapter 11 than consumers. But, a consumer who has too much income or debt to qualify for Chapter 7 will ultimately elect for Chapter 11 instead.
When a Chapter 11 plan is proposed, there is no limit on the duration of that case. Sometimes, these cases can complete themselves in a few months, while others can take a few years. But, there is a process to how Chapter 11 will play out.
- You will continue to operate your business. If you are filing for Chapter 11, you will continue to operate your business in the ordinary course, just as if you weren’t filing for bankruptcy. The bankruptcy court will appoint a trustee to take over operations if they find sufficient cause, but most of the time, the courts will allow you to operate as the debtor in possession (DIP). If the court does appoint a trustee, it is because there is a question of fraud, gross mismanagement, etc.
- The court will have control over major business decisions. While you may be in control and operating the day-to-day of your company, the court is still in charge of your business’s major decisions. Some things they can approve or deny include sale of assets; sale of property; entering into a lease or breaking a lease; shutting down the business; expanding the business; entering into any vendor, licensing, or other contract agreements; payment of fees; retention of fees for clients; securing financial agreements; entering into a mortgage; and borrowing money in general.
- Creditors will participate. During the Chapter 11 process, your creditors will support or oppose actions that come from your bankruptcy. Unsecured creditors are typically the ones that will participate through a committee, and they can even retain attorneys to assist at your expense.
Do You Feel Reorganization is Right for Your Business? Contact a Bankruptcy Attorney
If your business is struggling financially, filing for Chapter 11 to reorganize your debts may be your best solution. Contact the bankruptcy attorneys at Hames, Anderson, Whitlow & O’Leary to discuss your options. Schedule your bankruptcy consultation now for consumer or business bankruptcy at 509-586-7797, or request a consultation online.