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Points to ponder before a Chapter 11 bankruptcy filing


Business owners in Texas would agree that a business may close because of its inability to generate profits. While closure can be difficult for the business owner, matters can become worse if the business is in severe debt with bankruptcy being a possibility in the near future. During such times, many business owners have no other option but to file for bankruptcy and seek reorganization under Chapter 11.

Filing for Chapter 11 bankruptcy can relieve a business owner from debt. However, first it is important to evaluate if Chapter 11 bankruptcy is the best option for debt relief or if the debts can be settled through an out-of-court negotiation with the creditors. Only after a business owner has weighed the pros and cons of bankruptcy should that person proceed to the next step.

Before filing for bankruptcy, business owners should also consider the option of continuing to run the business, provided that the business can generate profits. Another area of concern that a business owner would typically review at this stage is whether the current business plan and the leadership are capable of a turnaround or if there is a need for an external consultant to turn the business around.

Business owners who choose to file for bankruptcy under Chapter 11 must also check if some or all of a business's debts are guaranteed by the owner or cosigners. This is important because after filing for bankruptcy, the business continues to operate and collection activities against guarantors and cosigners are not stopped by the creditors.

Finally, a business owner should remember that a bankruptcy filing exposes that person and the business to its creditors and the court, therefore the ability to conduct business-related activities is severely affected. Moreover, that business owner must adhere to all guidelines set by the bankruptcy court and any activity or decision that is not in the ordinary course of business needs to be approved by the court.

Once the business owner has made the decision, that person needs to prepare for the process, which is often long and complicated. Bankruptcy filings or out-of-court settlements do not necessarily require a lawyer's involvement but considering the number of complicated legal aspects involved in bankruptcy or debt relief, a lawyer's help may be beneficial to the business owner.

Source: FindLaw, "Ten Things to Think About Before Filing for Bankruptcy," accessed on Sept. 11, 2014

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