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Business Reorganization in Bankruptcy: Is It Right for You?

form to file for bankruptcy and a pen
  • Blog
  • Jill
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  • January 5, 2021

Business Reorganization in Bankruptcy: Is It Right for You?

Running a business can be difficult. There are a lot of moving parts to manage. Unfortunately, it does not always work out. Sometimes, it is the fault of someone running the company, but in other cases, uncontrollable factors can lead to insolvency. At this point, some companies may begin considering bankruptcy

Filing for bankruptcy is never an easy situation, but it can help those involved come out of the business in decent shape. There are two primary types of bankruptcy, with one involving dissolving and liquidating the business and the other involving reorganization. Reorganization is not always the best option, but it can be a good choice for some companies. 

What Is Reorganization?

Reorganization can come under the heading of several different types of bankruptcies, but with businesses, it is Chapter 11. Under Chapter 11, a business declares bankruptcy but can keep operating under the supervision of a court-appointed trustee. The trustee will be there to account for property and assets, object or examine claims, and file reports as required by the courts. This will allow the business to restructure its debts and assets in such a way that it can recover. 

Bankruptcy reorganization is no easy street when it comes to operating. It will require a massive amount of work to reorganize properly. The company itself can propose a reorganization plan, but it must be in the good interest of and approved by the creditors. If no plan is proposed, then the creditors can propose their own plan. 

The first few months of reorganization bankruptcy can involve a lot of large changes to the company. It can involve changing incompetent leadership, making operations more efficient, or even selling some assets. If certain assets are found to be inefficient or underperforming, then selling them may be a better option. 

The Initial Filing of Chapter 11

When Chapter 11 is first filed, it triggers an automatic stay. This prevents collections, judgments, foreclosures, and repossessions. In other words, it provides a breather for the business to formulate a repayment plan and engage in negotiations for the business. This is the stage where the business needs to be vigilant and prepare to find a way down through their debts. The automatic stay is a critical period that needs to be used properly. 

Reorganization Can Be a Way Out

If reorganization is done properly and a repayment plan is formulated and agreed to, the business could recover. Some businesses that have undergone reorganization are able to recover and get back to normal operations. Unfortunately, if reorganization is done improperly or debts are not repaid, then the business may have to be sold down the road. 

Reorganization can be an extremely complicated form of bankruptcy. It is typically also the most expensive form that includes filing fees, court fees, attorney fees, and the costs for reorganization. Chapter 11 should only come after a comprehensive review of the situation and looking into all other options. This is why the first step is to consult with a good bankruptcy attorney to figure out whether it is the best option for your company. 

Need Help in Figuring Your Way Through Bankruptcy?

When it comes to deciding which form of bankruptcy is right for you or your business, we can help. Bartifay Law has been helping Pennsylvania residents since 1993. We are greatly experienced in the field of bankruptcy and can help you find the best plan of action for your company. We have eight different locations across the state and offer free consultations regarding your case. Don’t let your financial situation get any worse. Give us a call today.

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