What Is a Chapter 11 Bankruptcy?

Posted by & filed under General Bankruptcy.

When it comes to filing bankruptcy, most individuals will either go with a chapter 7 or 13. In fact, most people don’t even know that there is another option available. However, for many, a chapter 11 may actually make the most sense. While you should always speak to a financial expert or, better still, a bankruptcy attorney, before filing, this will be a good precursor on chapter 11s.

Chapter 11s are primarily reserved for those who own small businesses and find themselves in need of relief. For a small business to restructure so that it can continue operating, choosing a Chapter 11 bankruptcy is the only option if the business is run by a partnership, corporation, or limited liability company. It’s also the only choice for those who own a business and want to reorganize it, but owe far too much to meet the eligibility requirements for filing a chapter 13.

To be clear, chapter 11 bankruptcies are an option for absolutely any business. Technically, an individual can file a chapter 11, but this is incredibly rare. While large corporations can file chapter 11s, it’s more often the domain of small businesses or medium sized companies.

The goal behind a chapter 11 is to help the business reorganize their operation to make profitability possible again. Obviously, they are given a stay to protect them during this time too.

Chapter 11s are no cakewalk for small businesses though. Some of them will even have to face some special requirements compared to corporations. It’s also fairly expensive and can be very complex and time-consuming. Of course, if yours gets dismissed, it’s also a risk that wasn’t worth taking.

That being said, chapter 11s exist for a reason, and small businesses continue to file them when things get tough. So, it may be a good choice for you and your company when your chips are down. Speak to a qualified professional prior to filing and you’ll know for sure if it’s the right move.

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