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What to Expect From a Chapter 11 Bankruptcy

Is the future of your business keeping you up at night? You’re not alone. Across the country, business owners are struggling to make sense of their finances after the economic crisis related to the pandemic. You might not believe it, but filing for a Chapter 11 Bankruptcy may be just what the doctor ordered to reduce your stress, reconfigure your business, and finally get some sleep.

An overwhelmingly common misconception is that bankruptcy is a failure accompanied by shame and public ridicule. Since our early years of playing Monopoly, bankruptcy automatically meant you lost the game. I can assure you that in the game of life, that’s not the case. As we begin the preliminary discussions with business owners surrounding the decision to file for bankruptcy, we’re often asked similar questions across the board. Here are some of our FAQs to help you learn more about how filing for a Chapter 11 bankruptcy will impact you as a business owner.

What is Chapter 11 bankruptcy?

A Chapter 11 bankruptcy is a strategic reorganization of your business affairs, debts, and assets. Consider it the CTRL-ALT-DLT of business management.

How does it work?

Reasons for filing for a Chapter 11 bankruptcy will vary, but the process remains relatively consistent throughout. The first step is always to seek counsel; an expert will be your guiding light throughout your filing, and it’s best to act before it becomes an emergency. The next step depends on whether you’re filing as an individual or a business, but we’ll put our heads together for your best path forward. We will then work with you to complete the necessary documentation, and in the case of a business seeking to reorganize, present your plan within the exclusivity period or such extensions as the court may allow.

We’ll collaborate closely to finalize every detail of the business plan that will be presented to the court and creditors, including various motions to ensure you can maintain normal business operations during the bankruptcy process. Being able to stay in control throughout is a unique part of American bankruptcy law. The plan will be considered by creditors and the court, and in the meantime, you’ll be protected by the automatic stay. While we wait for confirmation from the court, your business will get the breathing room it needs to pay off debts, stockpile cash ordinarily paid to creditors, and plan your future so that you can look forward to a fresh start on the other side.

How involved will I be?

At Michael H. Moody Law, we ensure that the process is as seamless and user-friendly as possible. As the business owner, your total time commitment is relatively minimal. We’ll work together upfront to create the schedules and statements that are presented to the court and creditors in your plan. After that, you’ll need to approve a monthly operating report that we build from scratch. Bankruptcy is complex and you will need to lean on the expertise of counsel to take the reigns of the bankruptcy process so you can dedicate your attention to your day-to-day business operations.

Is there a lot of paperwork?

As with any legal undertaking, filing for bankruptcy does require paperwork, but the process is relatively painless if you have sufficient help from competent counsel. At Moody Law, we’ve developed a system to get your paperwork completed efficiently—and correctly— utilizing a mixture of online forms that can be completed remotely, along with the personal review of counsel, and when necessary, counsel’s guidance on-site to ensure the proper information is gathered to set you up for success. We invest a great deal of time and attention into filing your paperwork accurately the first time in order to avoid or minimize amendments from the judge or the Office of the United States Trustee. We take a hands-on approach to acquiring as much detailed information as possible to ensure we’re doing the job right on behalf of your business and our firm.

How will it impact my business operations?

Typically, you’ll be able to continue normal operations as the debtor in possession (also known as the DIP). While the bankruptcy court will be able to weigh in on certain unique business decisions, your day-to-day operations should remain the same. As soon as your plan is approved and the effective date is set, the only obligations you’ll have are limited to what is included in your plan. Contractual obligations, leases, and second mortgages with no equity that you were burdened with are gone, and any aggressive creditors will be restricted by your automatic stay and by the terms of your confirmed plan.

Do I tell my employees?

Yes, your employees will be notified because they get priority if they have claims or have not received a paycheck at any time during the six months preceding the filing. Depending on the size and makeup of your company, you can either tell them personally or collaborate with a public relations resource to release a statement. Discussing the matter can be challenging, but as long as you’re honest and encouraging, that’s the best you can do as a leader. For all intents and purposes, it’s unlikely that they’ll notice a difference from their perspective in the organization if your path forward is to reorganize and restructure your debt and other obligations.

How long does it take?

The length of the bankruptcy process depends on complexity. It can take as little as 90 days or as long as 18 months, but the duration of time gives you the flexibility to get a breathing spell from much of your payment obligations. With this pause, you can then allocate the extra financial resources appropriately as necessary for the future survival of your business.

When should I file?

It’s always most advantageous to file if you’re on the upswing. It is also advantageous to file when you have income and expenses which support the viability of ongoing operations. For example, in the case of COVID-19, if your business is back in operation a bankruptcy reorganization could help you reject a lease, restrategize, and negotiate a plan for the “new normal” restructuring your debt and other obligations as necessary to accommodate changes to your business’ net income.

What happens next?

The world is your oyster. Bankruptcy is a strategic tool that allows you to survive and thrive after making any changes necessary to ensure your future success. I’ve seen a 600-employee airline bounce back. I’ve helped a multi-national company sell and move forward, retaining key employees and technologies that could have otherwise been lost. With a strategically planned and expertly executed Chapter 11 Bankruptcy, it’s onwards and upwards from here.

Are you considering filing? Let’s start the conversation about how we can help your business emerge from these difficult financial times. We look forward to supporting your efforts through this time and beyond!