Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

The bankruptcy case for small businesses is referred to as a “Subchapter V” (pronounced “Subchapter five”) bankruptcy or Chapter 11.  It was established recently to provided small business corporations and LLCs access to bankruptcy reorganization.  Even the “simplest” traditional Chapter 11 bankruptcy typically requires an investment of attorney fees and costs of no less than $40,000, and that is just to start.  As a result, Congress passed a law to provide Subchapter V as a streamlined (and hence, less expensive) version of Chapter 11 to make business reorganization bankruptcy available to a much greater number of small businesses.  While still an expensive process, most small businesses with steady revenues can find an experienced bankruptcy attorney to help them reduce their debt and continue operating.

Chapter 11 Bankruptcy

In a Subchapter B bankruptcy, a small business may continue to operate while a reorganization plan is created and approved by the bankruptcy court. This plan may involve reducing expenses, renegotiating contracts, and restructuring debt to make payments more manageable. The small business will also work with a Subchapter V bankruptcy trustee who is tasked with attempting to get the business and its creditors to reach an agreement on a consensual repayment plan.  The repayment plan typically does not require payment in full of all the debts, but rather only a contribution of the business’s net cash flow for a period of 3 to 5 years.

The Subchapter V Plan may also include the sale of some unneeded business assets to generate additional cash to pay creditors.  However, the sale of assets must be approved by the bankruptcy court and must be in the best interests of both the creditors and the small business.

Here are some potential benefits of filing for Subchapter V bankruptcy:

  • Business Continuity: One of the primary benefits of Subchapter V bankruptcy is that it allows businesses to continue operating while the reorganization process takes place. This can be particularly beneficial for businesses with valuable assets or ongoing operations that would otherwise be lost in a liquidation bankruptcy.
  • Debt Reorganization: Subchapter V bankruptcy allows for the reduction of debts, which helps make them more manageable. In some cases, a business may be able to negotiate with creditors to reduce the amount of debt owed or change the terms of payment to make them more favorable.
  • Increased Flexibility: Subchapter V bankruptcy provides businesses with greater flexibility than Chapter 7, which contemplates only sale and liquidation of the business’s assets. Management retains control of the business and continues operating it while reorganizing its debts, rather than having to sell off assets to pay creditors.
  • Protection from Creditors: Like all other bankruptcies, when a business files for Subchapter V bankruptcy, an automatic stay goes into effect that stops creditors from taking any further collection actions against the business. This gives the debtor time to negotiate with creditors and work out a plan for reorganization without the constant pressure of collection efforts.
  • Sale of Assets: In some cases, a business may need to sell off assets to pay creditors. Subchapter V bankruptcy allows for the sale of assets in a controlled and organized manner, which can help maximize the value of the assets and ensure that creditors are paid as much as possible.

The Subchapter V bankruptcy process is complex and time-consuming, but it can also provide small businesses with the opportunity to restructure its finances and continue operating, saving the owner’s life-effort and the jobs that are so important to the employees, their families, and the community at large. It is important for Miami small businesses owners considering Subchapter V bankruptcy to consult with an experienced  Miami bankruptcy attorney who can guide them through the process and help them navigate the various legal and financial issues involved.

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