Advantages of Chapter 11 Bankruptcy
Nobody wants to file for bankruptcy. But if you own a business that’s struggling to stay afloat due to outstanding financial obligations, Chapter 11 bankruptcy could provide the relief that you need.
Chapter 11 is also known as a reorganization bankruptcy. Rather than closing down operations altogether, Chapter 11 gives owners an opportunity to keep their businesses open while developing a plan to resolve their debts. The goal is to restore the business’s financial health while putting owners in a position for long-term success.
Below, the Ohio bankruptcy lawyers at Amourgis & Associates, Attorneys at Law, discuss the advantages of filing for Chapter 11 bankruptcy.
For personalized legal advice about your business’s options, call or contact us today for a free consultation.
Benefits of Chapter 11 Bankruptcy
Chapter 11 allows businesses to regroup when they are financially strapped. There are several benefits, which include:
Keeping the Business Open
You worked hard to open your business. Chapter 11 gives you the ability to keep it running while you reorganize under the supervision of the bankruptcy court. By continuing operations, you get to keep your business name, goodwill, and customer base while negotiating for a better financial position.
One of the most valuable benefits of Chapter 11 bankruptcy is the automatic stay. Once a petition is filed, there is an automatic injunction on creditors pursuing you to collect their debts. All pending lawsuits, foreclosures, repossessions, liens, wage garnishments, levies and other debt-collection activities must cease.With the automatic stay is triggered, collection agencies cannot call you or send you letters demanding payment. This gives you time to look at your financial situation and work with your lawyer to prepare a reorganization plan to the bankruptcy court.
Restructuring of Secured Debt
There are two primary types of debt: secured and unsecured.Secured debts are attached to an asset, such as a house or car. That asset serves as collateral for your debt. Lenders can place a lien on the asset if you neglect to make payments on it. For example, they might foreclose on your house or repossess your car if you are delinquent on payments.Unsecured debts have no collateral. The classic example of unsecured debt is credit card debt. Creditors cannot come after any assets if you are delinquent on unsecured debt, but they can send debt collectors after you and garnish your wages.
In a Chapter 11 bankruptcy, your secured debts can be restructured to give you a more manageable way to pay your bills. This could mean lowering the interest rate on the obligation, extending the maturity date, eliminating personal guarantees, and/or reducing reporting requirements.
Some of your debt will be discharged as part of the bankruptcy process. Your reorganization plan will prioritize your debt and make sure that creditors get paid while still giving you a chance to come out with a better financial outlook.
Sell Property Free and Clear of Liens
Sometimes it makes sense to sell some of your assets to reduce your debt burden. You can do that in Chapter 11 bankruptcy, even if liens have been placed on the property. A debtor can seek approval from the court to sell the property free of any other liens and interests to entice buyers to make the purchase.
Adjustment of Interests
Another advantage of Chapter 11 bankruptcy is that it allows debtors to negotiate with creditors to lower interest rates on loans. Although creditors certainly want the full amount that they are due, they know that getting some money is better than nothing.
Extended Payment on Tax Debts
Certain tax debts can get discharged in bankruptcy, but not all of them. In Chapter 11, you cannot be forgiven for tax debts that you willfully tried to evade. There are other specific rules about what taxes can be discharged, and when they become eligible for discharge:
- Tax debt cannot be discharged until three years after they were due. For example, taxes due in 2021 cannot be forgiven until 2024.
- You must have filed a tax return for the tax you want to discharge at least two years before your bankruptcy filing.
- Taxes must have been assessed at least 240 days before you initiated Chapter 11 proceedings.
You can still receive tax refunds while going through bankruptcy proceedings, but that money will most likely be diverted to pay off your tax debts.
In some cases, it’s logical to wait to file for bankruptcy until you can discharge the most tax debt. You may also be able to develop a plan to pay the Internal Revenue Service (IRS) back in installments. A bankruptcy attorney can advise about the best plan for you during reorganization.
Contact an Ohio Chapter 11 Bankruptcy Lawyer Now
The decision to file for Chapter 11 bankruptcy is a difficult one. You don’t have to make it alone. Put Amourgis & Associates, Attorneys at Law to work for you.
When you work with our law firm, you’ll get an experienced Chapter 11 bankruptcy lawyer who can break down complex bankruptcy laws and explain how they can be leveraged to help your business. Our attorneys will also:
- Prepare your bankruptcy petition to outline all of your debts, assets, income, and other relevant financial information: Filing a petition accurately is essential to get your case underway, and you don’t want clerical errors to set you back.
- Craft your reorganization plan: Unlike Chapter 7 bankruptcy, where debtors do not have an intention to repay debts, you will need a solid reorganization plan to present to the court in Chapter 11. Our experienced lawyers can advise on how to reorganize that can maximize profitability in the long run.
- Handle negotiations with creditors: Everyone wants to get paid, so creditors will need to approve your reorganization plan. Our experienced attorneys can negotiate with them to develop a plan that realistically helps you pay your debts by reducing payments or interest rates.
- Represent you in court: Because you may be facing lawsuits from creditors with strong evidence against you, it will be good to have one of our bankruptcy lawyers on your side to protect your best interests.
Rest assured that an Ohio bankruptcy lawyer from Amourgis & Associates, Attorneys at Law is always advocating for you — not the creditors and debt collectors — at all times.
Call or fill out our convenient online form for a free consultation.