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You Deserve Financial Relief

Russell G. Small and Kenneth Lenz

How Chapter 11 bankruptcy can help a business with debt relief

| Feb 7, 2020 | Chapter 11 Bankruptcy

When it comes to running a business in Connecticut, challenges can arise and lead to overwhelming bills. Sometimes, creditors will become aggressive in their collection efforts and place a business in jeopardy. Rather than close the business, Chapter 11 bankruptcy is a viable alternative to reorganize.

There are important points to understand about filing for Chapter 11. While it’s commonly associated with corporations, small businesses can also use it to reorganize their debt burden. By using Chapter 11, a business can try to bring in revenue while being protected from creditors’ collection efforts. For owners who want to remain in business, this is preferable to a Chapter 7 liquidation.

As soon as the case is filed, there is an automatic stay on collection efforts. This means they will stop. The debtor can then formulate a reorganization and seek payment terms it can meet. The business could run its operations during the Chapter 11. The main idea behind Chapter 11 is for the business to regain profitability. This can often be achieved by reducing its debt load and getting some breathing room from creditors. The creditors can also benefit because the payments will generally be more than with a Chapter 7.

Having a reasonable and good faith plan generally results in confirmation by the court. Debts that were acquired before the confirmation will then discharged. The debtor will still be obligated to pay the creditors in accordance with the agreement. Small businesses could face greater challenges in becoming profitable, so it is more common for a small business Chapter 11 to be converted to a Chapter 7.

When a business struggles, it’s important to think about all options to continue operating and get on stronger ground. A Chapter 11 bankruptcy can achieve that. Legal counsel could help a business that’s in the red explore all its options.

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