Money Tips from a New Investor

Posted on: 12 November 2019

If your business has run against some unmanageably heavy weather in the form of crippling debt, you may feel that you've exhausted all of your options except for the "nuclear" one: filing for bankruptcy. But pursuing a commercial bankruptcy can prove a complex and confusing process, even if it does allow you to save your enterprise in the long run. Here are three essential questions to ask your provider of commercial bankruptcy services before making the decision to go forward.

1. What Kind of Bankruptcy Should I Pursue?

There are several different categories of business bankruptcy, each of which might be appropriate for a particular business type or structure. For example, sole proprietors (who typically hold personal liability for all of their debt, including their business debt) may simply file for Chapter 7 bankruptcy, the tool typically used by debt-ridden individual consumers. This step will liquidate the business as one of the filer's assets. A small corporation or partnership may file for Chapter 13 bankruptcy, a corporate repayment plan that allows the business to stay open as long it makes monthly repayments to the trustee. A similar option called Chapter 12 exists for small fishing and farming companies. A large business that wishes to remain operational will likely select a long-term financial reorganization plan under Chapter 11, especially if the debt in question exceeds the limits imposed by Chapter 13.

2. How Does Business Reorganization Work?

If your business decides to pursue a Chapter 11 bankruptcy reorganization plan, you must first submit that plan to your internal team, creditor, and shareholders for approval. This process is overseen by a federally-assigned trustee. You can speed and simplify this process, however, by creating and voting on such a plan before bankruptcy becomes necessary, a strategy known as a prepackaged bankruptcy plan. If the bankruptcy court approves the vote, the reorganization plan goes into action. Ideally, you'll end up with a stronger, more stable business than before — while not missing a beat in your daily operations.

3. How Long Does a Typical Commercial Bankruptcy Period Last?

It may take a few months for a Chapter 7 filing to be completed, from the initial credit counseling to the final court-approved discharge of debt. Commercial bankruptcies proceed for the entire length of whatever repayment or reorganization plan you have devised. Most Chapter 11 and Chapter 13 bankruptcies are designed to span a period of 3 to 5 years before final discharge. 

It's important to keep your financial house in good order during your debt repayment or reorganization period — not only to ensure that you meet the requirements of your plan but also to keep you from having to file another bankruptcy too soon. Chapter 7 or 11 filers, for instance, cannot file for another Chapter 7 for 8 years after the discharge of their current bankruptcy (or for another 6 years if they wish to file under Chapter 12 or 13). Chapter 13 filers cannot file under Chapter 13 for at least 2 years following discharge, or for at least 4 years if they wish to file under Chapter 7, 11 or 12.

As you might imagine, a commercial bankruptcy plan calls for considerable skill and expertise in this complex field. Contact your local provider of commercial bankruptcy services to schedule a consultation, learn your options, and find your best way forward.