(US Business Bankruptcy Laws) When your company is in financial distress, filing for a Chapter 11 or Chapter 7 bankruptcy may be in your best interest. Bankruptcy does not need to be something that strikes fear into your company, because it can actually provide your business with the opportunity to reorganize its finances and continue to operate. Chapter 11 business bankruptcy is commonly referred to as reorganization, and it provides a business owner with the opportunity to present a plan to the court for approval from creditors. This repayment plan helps the business owner to continue to operate a business and repay creditors at the same time. When your business is in danger of failing, here are some steps that you can take to prepare for the process of bankruptcy.
Get in Touch with a Bankruptcy Lawyer
Your first move should be to get in touch with a bankruptcy lawyer. A bankruptcy lawyer will look for ways in which you can potentially avoid bankruptcy. He or she will get on the phone with creditors and discuss potential payment plans that can be achieved without bankruptcy. The lawyer may also be able to get certain debts eliminated in your situation. If neither of these strategies work, then the bankruptcy lawyer will move forward in the filing of bankruptcy for your case.
Filing the Petition
After you have decided to move forward with bankruptcy, the lawyer will then file a petition with the court. This petition must include a schedule of all of the assets that a business currently owns. The petition must also include a current statement of the company’s financial affairs.
Debtor in Possession Role
The business owner will typically then be the one who is named as the debtor-in-possession (DIP) in the bankruptcy case. As the DIP, the business owner has the role of serving as a fiduciary. The DIP will then examine all of the claims that are filed by creditors. He or she may also have to employ attorneys, appraisers and other experts who can help in managing the bankruptcy estate.
Presentation of the Plan
The next step in a bankruptcy case is to present a bankruptcy plan to the creditors. A bankruptcy plan will outline the repayment process for all of the creditors who are involved in the case. The bankruptcy plan will need to be approved by creditors before a small business owner can move forward. In managing this payment system, it will be important for a DIP to treat all creditors in an equal fashion. The general rule in business bankruptcy cases is that no creditor may receive a priority payment over the other creditors in the case. There may be certain types of situations that do allow for a creditor to receive priority payments, such as a creditor who requests an adequate assurance. The adequate assurance merely provides a creditor with a sum of money or other type of payment to ensure that services will continue to be performed under an existing contract.
Obtaining the Discharge
A discharge of debts will only be entered when a debtor has made all of the payments that are required under a plan. A debtor must meet all of the obligations that have been ordered by the court in a bankruptcy plan.
If you have any questions about the bankruptcy process, a bankruptcy lawyer can help you. Meeting with a bankruptcy lawyer will help you understand the process of creating the repayment plan. You can also understand what rights you have as a DIP if you chose to retain legal ouncil.
Byline: Oliver Robinson is a freelance blogger who specializes in legal articles pertaining to business bankruptcy.