A business owner in Tennessee may use Chapter 11 bankruptcy to reorganize a company if it's saddled with substantial debt. While this type of bankruptcy is usually associated with corporations, small businesses are also eligible to file.
Chapter 11 allows debtors to submit a profitability plan that would be enacted after bankruptcy. The plan may include pursuing new types of revenue or cutting costs. It differs from Chapter 7 bankruptcy, which requires the business to stop operating and sell its liquid assets to pay creditors. Chapter 11 bankruptcy provides a number of benefits to qualified businesses, including the chance to reorganize and additional time to submit a plan; however, it is more expensive than other types of bankruptcy and takes more time to complete.
Filing a petition is the first step in seeking Chapter 11 bankruptcy protection. If the creditors of a business file the petition, it is called an involuntary petition. The filing of the petition initiates an automatic stay of any collection procedures, which means that creditors will not be allowed to continue existing collections activities or begin new ones unless permitted by the bankruptcy court. This relief from collections gives the debtor the chance to develop a reorganization plan. It also gives them the opportunity to seek better repayment terms.
The business will continue to operate without interruption while the debtor, who is supervised by the bankruptcy court, devises a repayment plan for its debts. The repayment amounts are likely to be much less than the sum of the original debt amount.
An attorney who practices bankruptcy law may advise a business owner about whether their company qualifies for Chapter 11 bankruptcy. Counsel could also help draft a repayment plan and offer guidance regarding the reorganization of the business.