Taking the plunge into starting a small business is a brave move. These men and women oftentimes face financial uncertainty as they try to grow their business. Some small business owners are able to fight through the difficulties of the first few years and find longevity. Others, though, find themselves trapped by growing debt and ever aggressive creditors. Although many small business owners want to keep fighting to both save their business and climb out of debt, the reality is that many would benefit from seeking some type of debt relief.
One option available to small businesses is Chapter 11 bankruptcy. This type of reorganization bankruptcy can allow a business to remain functioning while making debt payments more manageable. For a small business to qualify for Chapter 11, it must have less than approximately $2.5 million in secured and unsecured debt, and meet other requirements.
Those who pursue this type of bankruptcy have to comply with many terms. For example, balance sheets and cash-flow statements must be submitted in an ongoing fashion to give the bankruptcy trustee a sense of the business's profitability. The goal in Chapter 11 is to make a business profitable again. This gives creditors incentive to hold off on debt collection in hopes that they will be able to recover the debt in time. It is for this reason that the trustee in a small business Chapter 11 case may be very involved in overseeing the business's financial operation.
Of course, Chapter 11 isn't right for every small business. For some, it may be best to liquidate assets, pay off debt, and be done with the matter. Others may find other forms of reorganization beneficial. In some cases, bankruptcy may not even be a good fit for a small business. It all really depends on the circumstances at hand. It might therefore behoove a struggling small business owner to speak with an attorney about how best to seek the debt relief they need.
Source: US Courts, "Chapter 11 - Bankruptcy Basics," accessed on March 25, 2017