5 Things To Know Before Filing Chapter 11 Bankruptcy

Even the most successful businesses can face financial turmoil, forcing owners to make tough decisions about their future. If mounting debt puts your company at risk, Chapter 11 bankruptcy offers a path to restructure obligations and regain stability. However, navigating this complex process requires strategic planning and legal expertise. Working with a Chapter 11 lawyer can protect your assets, keep operations running, and help your business build a stronger financial future. 

Businesses or individuals filing for Chapter 11 bankruptcy can turn to Conway Law Group for all their legal concerns. Our team provides reliable and compassionate services to help people regain their feet while protecting their most important assets. For a free Chapter 11 case evaluation, call our Woodbridge, VA, office at (571) 752-4476, our Fredericksburg, VA, office at (540) 217-6196, or our Richmond office at (804) 256-2918 today. 

Below, we share 5 crucial points you should know before filing for Chapter 11 bankruptcy:

1. Chapter 11 Reorganizes Your Assets

Unlike liquidation bankruptcies, such as Chapter 7, Chapter 11 creates “breathing room” for businesses to reorganize financial obligations without surrendering their assets. Organizations can thus restructure debts without shutting their doors, a capacity unique to Chapter 11 bankruptcy. 

Businesses that file for Chapter 11 maintain possession of their assets by operating as debtors in possession under court supervision. This condition allows them to continue generating revenue from assets while addressing their financial challenges. However, this reorganization must earn creditors greater value than they would have received through asset liquidation alone. 

2. Chapter 11 Focuses on Businesses

While individuals can file for Chapter 11, this bankruptcy type primarily focuses on businesses handling complex debts and operational restructuring. Individuals are better served by Chapter 13 or Chapter 7 bankruptcy, which provides efficient and cost-effective approaches, while Chapter 11’s flexibility accommodates various business structures, including corporations, partnerships, and LLCs.

The Chapter 11 process allows business entities to reorganize complicated debt structures, restructure leases and contracts, and make operational changes while remaining in business. More specifically, Subchapter V streamlines the Chapter 11 process for small businesses, making it more accessible and less expensive when compared to traditional filings. Those considering bankruptcy should consult a Chapter 11 lawyer to determine whether it offers the most suitable option for their business needs. 

3. Chapter 11 Requires a Reorganization Plan

The core of Chapter 11 is its reorganization plan, which details how the business will address debts and return to profitability. This comprehensive document requires financial projections, detailed asset valuations, and specific repayment proposals. Creditors must vote on the plan and ultimately receive court approval before implementation. 

Additionally, all reorganization plans must fall under one of the three characterizations: free fall, pre-arranged, and pre-packaged. These classifications dictate the level of creditor involvement and pre-filing negotiation that occurred. 

4. Chapter 11 Does Not Eliminate All Debt

Chapter 11 restructures rather than eliminates most business obligations. Priority debts like taxes, employee wages, and secured creditors generally receive full payment, though often on extended timelines. While certain unsecured debts may receive reduced payments, businesses must demonstrate good-faith efforts to address all obligations. 

The court-approved repayment plan specifies which debts receive modification and how any remaining obligations will be satisfied. Understanding which debts can be modified and which cannot is essential for creating a feasible reorganization plan. 

5. Chapter 11 Limits Your Business Decisions

As stated earlier, during Chapter 11 proceedings, businesses operate as debtors in possession—they can continue to generate revenue while under court oversight. During this period, most business decisions require court approval, including property sales, lease terminations, expansion efforts, and executive compensation changes. Sometimes, the court will even appoint a committee to represent creditors’ interests, creating additional oversight of operations.

Navigate Bankruptcy With a Fredericksburg, VA, Chapter 11 Lawyer

Chapter 11 bankruptcy is a powerful tool for recovering from bankruptcy that requires careful navigation of complex legal requirements. At Conway Law Group in Fredericksburg, VA, our experienced Chapter 11 lawyers guide businesses through each stage of the bankruptcy process, helping them determine whether or not Chapter 11 offers the best solution for their financial challenges. For a free Chapter 11 case evaluation, call our Woodbridge, VA, office at (571) 752-4476, our Fredericksburg, VA, office at (540) 217-6196, or our Richmond, VA, office at (804) 256-2918 today.