Bank finance articles and tips

n today's harsh economic climate, more businesses are struggling to stay on top of their debts. However, as credit becomes increasingly scarce and customers continue to feel the pinch of strained finances, it's no surprise that more businesses are considering filing for Chapter 11 bankruptcy.

If you're a business owner considering filing Chapter 11 bankruptcy this article will outline exactly what you need to know.

What Is Chapter 11 Bankruptcy?

Unlike Chapter 7 and Chapter 13 bankruptcies, Chapter 11 bankruptcy is mainly used by businesses as a way to protect their assets while filing for bankruptcy. While the law under a Chapter 7 requires that a business liquidates its assets in order to pay off creditors, a Chapter 11 gives the debtor (in this case, the business owner) the time needed to reorganize the business's finances and pay off its debts.

The main advantage to the Chapter 11 bankruptcy is that a business can keep a large majority of its assets; however, filing for bankruptcy under this chapter is expensive, complicated and incredibly time-consuming. Additionally, some businesses invest in the expense of a Chapter 11, only to fail to pay off their debts down the line. With this in mind, it's crucial for the debtor to fully understand just how and when he or she will be able to pay the total debts off.

What Happens After You File A Chapter 11 Bankruptcy?

When the business entity (the debtor) files for a Chapter 11 bankruptcy, all collection activities will cease. If a creditor does not cease collection activities, be sure to let your bankruptcy attorney know, as he or she will send a letter on your behalf demanding that any and all collection attempts stop.

After this step, you and your bankruptcy attorney will meet to devise a plan that restructures your business's finances in order to pay off your creditors. Please note that within 120 days of filing for Chapter 11, your creditors may also propose a payment plan. These plans can include forgiven debts and cancelled contracts, so it could be worthwhile to wait and see what your creditors are willing to offer.

Ultimately, the restructured payment plan must be approved by your creditors. To ensure that the payment plan is properly followed, bankruptcy courts will appoint a US trustee to track the debtor's progress. Should the approved plan not be followed by the debtor, the trustee has the right to take over the business or put someone else in charge of your business's finances.

Why You'll Need A Bankruptcy Attorney

Apart from the legal needs represented above, it's important for debtors seek a highly-qualified bankruptcy attorney because Chapter 11 bankruptcies can last for a significant period of time. This length of time - in addition to the complexities and legalities of Chapter 11 itself - renders it necessary to find legal representation from a bankruptcy attorney with a high rate of success.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.

By Reed Allmand
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