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What is a Chapter 11 bankruptcy filing?

Financial problems have a tendency of sneaking up on us and growing uncontrollably. This can make it a very overwhelming experience for any individual or business dealing with this situation. While it is possible to take the initiative to work through money issues on your own, they often tend to develop into a bigger creature than one can handle. Thus, it is common for businesses in California and elsewhere dealing with debt problems to seek out assistance to fully understand their options.

When businesses suffer debt problems, many do not want to compromise the ability of the business to thrive. Shutting down a business and eliminating debt is not always in the best interest of the business and the business owner. Because of that, Chapter 11 bankruptcy can seem very appealing and very promising in the matter.

What is a Chapter 11 bankruptcy filing? A Chapter 11 bankruptcy is used for the reorganization of a business that is currently facing huge debt burdens. Many corporations utilize this debt relief approach; however, many small businesses enjoy the benefits of this bankruptcy filing as well. In simple terms, a Chapter 11 requires the business to propose a plan for profitability post-bankruptcy. This includes showing how costs will be trimmed and new sources of revenue or income will be sought. During this phase, all creditors will be held off temporarily.

During this time or reorganization, the business will draft a plan that not only shows how the company will become profitable but will also stipulate a plan to repay their debt obligations. This might require some negotiation to reduce or dismiss some of their debt; however, once these terms are reached and the plan is approved, the Chapter 11 bankruptcy process is completed and the plan will be put in place.

Filing for Chapter 11 bankruptcy can be a real and rational solution for businesses dealing with debt burdens. While it can take time to work through the details and develop a reorganization plan, taking this step could be the best way for a business to turn a potential closing of their business into a profitable business situation.

Source: Findlaw.com, "Chapter 11 Bankruptcy," accessed Oct. 30, 2017

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