Businesses may begin struggling financially for a variety of reasons. Perhaps supply chain issues disrupted order delivery services for a company, and now it cannot currently manufacture products due to a lack of raw materials. Maybe an organization recently lost a lawsuit brought by a former employee or a customer who blamed the company for an injury.
Perhaps shifting market demands have made a company’s prior model obsolete, meaning that it will need to adjust drastically if it wishes to remain operational. There are countless issues that can lead to financial challenges even at previously successful companies.
Businesses struggling to cover basic operating expenses and facing insolvency can sometimes change their circumstances by taking legal action. Filing for bankruptcy is a way to gain control over debts and to temporarily stop collection activity. For companies that hope to continue operating despite current struggles, Chapter 11 bankruptcy might be the best option.
What is Chapter 11 bankruptcy?
A Chapter 7 bankruptcy may require asset liquidation in some cases and is often a valuable tool for a business that someone intends to close. The business can discharge debts while also preparing to shut down for good. Chapter 13 bankruptcy can help organizations that may need to renegotiate certain debts and hope to maintain good relationships with their creditors.
Chapter 11 bankruptcy, on the other hand, offers an opportunity to keep the company open, possibly by restructuring the organization. If a company intends to lay off multiple workers and clothes facilities because it has more than one location, a Chapter 11 bankruptcy may be the best form of bankruptcy given those goals. If the company wants to drastically alter how it does business, Chapter 11 bankruptcy may be the best option in that case as well.
The ability to rework how the company does business can prove invaluable when the current business model has begun to fail. Companies may not be able to sell off assets without approval in a Chapter 11 bankruptcy. As the bankruptcy progresses, the business owner will need to file monthly reports with the courts to explain the current financial status of the company.
A Chapter 11 bankruptcy can lead to drastically reduced operating expenses and improved company solvency. Exploring the different forms of business bankruptcy can help executives and owners who hope to approach these opportunities in thoughtful and informed ways, given the current financial struggles their organizations face.