5 Things to Know About Chapter 11 Bankruptcy

Although bankruptcy can seem like an intimidating subject, business owners can tackle this complex process with help from an experienced commercial bankruptcy attorney. Each chapter of bankruptcy is different and has its own unique requirements, which is why businesses should speak with competent bankruptcy counsel at the first sign of financial trouble to have the best chance of a favorable outcome in court. Ritter Spencer Cheng, a Dallas law firm that specializes in Dallas bankruptcy filings, can help your business understand Chapter 11 bankruptcy and determine if it is the right financial move for your company.

#1: Some of the biggest companies in the world have filed for Chapter 11 bankruptcy

Deciding to file for bankruptcy is always a difficult decision, but it does not necessarily mean the end of your business. Several of the world’s biggest companies have had to file for bankruptcy in an attempt to overcome financial challenges or mounting debt. General Motors, one of the largest automobile manufacturers in the world, had to file for Chapter 11 bankruptcy after the financial crisis of 2008 but was able to recover with aid from the federal government. United Airlines is another survivor of Chapter 11 bankruptcy that reorganized to become profitable again after paying back their creditors. Even if your business is smaller than General Motors or United Airlines, a skilled commercial bankruptcy attorney can file for Chapter 11 bankruptcy and may be able to help your company restructure and reorganize to repay creditors without losing ownership. If you or your business owes $2.7 million in business-related debt, not including the amounts owed to the owners and insiders, you may be able to take advantage of the new provisions of Chapter 11 designed for small business debtors through subchapter V of Chapter 11, effective February 19, 2020.

#2: Chapter 11 bankruptcy is usually voluntary

Some business owners may be under the impression that creditors force a company into filing for bankruptcy if they stop receiving payment. This can happen. In many cases, however, the owner of a business realizes that they are in a risky financial situation and files for bankruptcy relief in court themselves. It is possible for creditors to band together and file an involuntary bankruptcy petition against the debtor, but the majority of Chapter 11 bankruptcy filings are made on behalf of the business owner. A commercial bankruptcy lawyer can help business owners file for Chapter 11 bankruptcy correctly and begin the process towards a fresh financial start.

#3: Many Chapter 11 debtors can continue to manage some everyday business operations

In many Chapter 11 bankruptcy cases, the debtor is often allowed to continue ordinary business operations as a “debtor in possession.” A commercial bankruptcy attorney helps a business present “first day motions” to a bankruptcy court, which allows the company to maintain the use of funds and continue with everyday operations, such as paying its employees. Courts are often willing to assist a debtor who is in good faith as they try to maintain an operational business. Although uncommon, a trustee may be appointed by the court to take over business operations from the debtor if a judge finds sufficient cause. A trustee is usually appointed as a result of fraud, dishonesty, incompetence, or other forms of mismanagement on the part of the debtor.

#4: Bankruptcy court controls most major business decisions in a Chapter 11 case

Although a debtor can often stay in control of their company for everyday operations, most significant business decisions are controlled by the bankruptcy court in a Chapter 11 bankruptcy filing. The bankruptcy court usually controls any significant changes in leasing agreements, financial borrowing, business operations, or contracts, regardless of whether the debtor or a trustee controls the business. An experienced commercial bankruptcy attorney can help your business understand what types of decisions are considered in the “ordinary course of business” and authorized to be made by a debtor-in-possession, and which decisions are controlled by the bankruptcy court.

#5: A Chapter 11 plan allows a debtor to reorganize its financial obligations with creditors

While it is possible for some companies to avoid a bankruptcy filing altogether with assistance from a commercial business lawyer, filing for Chapter 11 bankruptcy gives the debtor some freedom in how they plan to pay back creditors and exit bankruptcy proceedings. A Chapter 11 bankruptcy filing acts as a contract between the debtor and creditors so both parties understand how the debtor will pay back creditors and how business operations will proceed. This particular chapter of bankruptcy gives debtors the opportunity to obtain a discharge and “fresh start” with a clear plan about how the business will pay obligations in the future. A competent commercial bankruptcy lawyer can help your business develop a plan that is beneficial for your company’s future success. 

Chapter 11 bankruptcy can be surprisingly complicated, which is why businesses should invest in a relationship with a skilled bankruptcy attorney before financial problems become significant. With effective restructuring, reorganization, and consideration of all options to deal with creditors, companies may be able to avoid a bankruptcy filing and obtain a fresh start as a business.  For small business debtors, those owing $2.7 million or less to non-insider creditors, new options for negotiation will become available on February 19, 2020. 

For companies preparing for their future success and considering all financial possibilities, business owners can rely on Dallas commercial bankruptcy attorney, David Ritter, to reorganize and restructure the business. David Ritter offers over 25 years of experience in Dallas bankruptcy filings and is skilled in a variety of commercial bankruptcy processes, including restructuring, reorganization, mediation with creditors, and court filings. Companies in need of a bankruptcy attorney in Dallas, Texas need to work with David Ritter and the accomplished team at Ritter Spencer Cheng PLLC.