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Business debtors and individuals with higher debt amounts can seek relief in Chapter 11 bankruptcy when they’re no longer able to service their debt. Chapter 11 provides for the restructuring of debt into more serviceable terms and also allows the business debtor to continue some or all of their business operations. This can be contrasted with Chapter 7, which for a business would mean closure and liquidation.
Chapter 11 bankruptcy is among the most complicated bankruptcy types. However, it may serve the interests of farm operators or other parties who could not get the recourse they needed from Chapter 12 or Chapter 13 bankruptcies.
For example, Chapter 11 allows for higher debt limits. However, the complexities involved make it crucial for businesses to consult with an experienced lawyer before and during Chapter 11 proceedings.
Chapter 11 is designed to reorganize and restructure the debt of the petitioner, which allows the petitioner to overcome the financial difficulties they have been experiencing and get back on track financially. Every business has unique operations and issues, which will of course dictate the specifics of the case and the options to deal with the particular financial hardships the debtor faces. But, chapter 11 follows the same overarching process no matter the case.
Chapter 11 bankruptcies proceed in the following manner:
Keep in mind that when a business decides to use the provisions of Chapter 11, the company is treated as separate from its owners. Stockholders and owners need not fear that their personal assets will be implicated in the bankruptcy process except for direct stocks or investments in the company.
This separation does not, however, apply to sole proprietorships. Sole proprietors who file Chapter 11 bankruptcy have business and personal assets implicated in the process. Partnerships, although separate from their partners, may also see partners’ personal assets implicated in bankruptcy.
Since 2019 and the enactment of the Small Business Reorganization Act, small businesses have had the option to file under Subchapter V of Chapter 11, which can help streamline the often clumsy, expensive chapter 11 bankruptcy process. Subchapter V can also allow a debtor to confirm a Plan more easily than traditional Chapter 11 in the face of creditor objections to the Plan.
There are stricter eligibility requirements and timelines are much shorter than in traditional Chapter 11 proceedings, but Subchapter V has many advantages that often make it a better option to help a small business reorganize and overcome financial difficulty.
Swanson Sweet LLP finds and creates solutions in bankruptcy for businesses and individuals in Wisconsin who are facing overwhelming debt. Please call to schedule a consultation with our team. When we meet, we will review your circumstances and help guide you on how to proceed.
Let’s explore your options for getting back on track and becoming profitable. Call today. With offices in Madison, Oshkosh, and Milwaukee, and remote meeting options available, we serve clients throughout the State of Wisconsin.
