Is Filing for Chapter 11 Bankruptcy Right for My Small Business?

Is Filing for Chapter 11 Bankruptcy Right for My Small Business?

Find Out the Advantages of Chapter 11 for Small Companies in Aurora, Illinois

Declaring bankruptcy might be considered if your small business is having trouble. Small business owners who wish to keep their company open have chapter 11 and 13 options, both of which are welcome alternatives. If you are asking “is filing for chapter 11 bankruptcy right for my small business in Aurora, IL”, read on.

In this section, we’ll outline Chapter 11 bankruptcy and show how it might be a good choice for small businesses in Illinois. Before understanding chapter 11 bankruptcy, it is best to understand every single angle regarding this topic and to see what your legal options are with the help of an attorney. 

We shall address the following queries in this article:

  • Why file for Chapter 11 bankruptcy?
  • Are there some advantages after filing Chapter 11 bankruptcy?
  • What are the downsides of filing for Chapter 11?
  • Are there particular requirements for Chapter 11 bankruptcy?
  • What does filing for bankruptcy under Chapter 11 entail in terms of fees, costs, and paperwork?
  • After declaring Chapter 11 bankruptcy, how should my plan look?

If you are wondering “is filing for chapter 11 bankruptcy right for my small business in Aurora, IL?”, then you’ve come to the right place. At Cutler & Associates, LTD, we are happy to answer your questions and help you make informed decisions regarding Chapter 11 bankruptcy and how it can provide you with a fresh financial start. Contact us right away for a free consultation

Why file for Chapter 11 bankruptcy? 

Chapter 11 bankruptcy, which is typically exclusively utilized by large corporations, may, in the right circumstances, be the best bankruptcy choice for a small business. Small business owners with debts too large for Chapter 13 should actively consider Chapter 11 in order to maintain some level of profitability while declaring bankruptcy.

A small business is one that, in accordance with Chapter 11 bankruptcy legislation, has total obligations less than $3,024,725; once Chapter 11 bankruptcy is submitted, the debtor’s status is formally changed to “debtor-in-possession,” who is granted access to and control over new bank accounts. Chapter 11 provides the debtor(s) with relief so they can renegotiate contracts and restructure debt into a plan that will be resolved within the time period determined during the planning phase.

It is recommended that you consult with a bankruptcy lawyer in Aurora to make sure you are fully aware of your options.

What are some of the advantages after filing Chapter 11 bankruptcy? 

The advantages of Chapter 11 bankruptcy for small businesses are similar to those provided by various types of bankruptcy, such as:

  • The automatic stay rule is activated by a Chapter 11 filing, essentially preventing all present creditors, including the IRS, from pursuing further debt collection efforts;
  • The D.I.P. has all the authority of a trustee under Chapter 11, which entitles her to oppose claims, submit applications to seize seized property, and offer superfluous property for sale;
  • Secured debts under the Chapter 11 repayment plan that have a sum greater than their value may be “crammed down” to their appraised value;
  • Unfavorable contracts can be renegotiated or terminated by the debtor.
  • Unlike previous types of bankruptcy, Chapter 11 allows the business to pay tax payments and unsecured debt over a longer period of time.
  • The majority of loans will be renegotiated to lower amounts than they are now, and
  • Your company is still able to run under Chapter 11’s supervision and remain open.

What are the downsides of filing for Chapter 11?

Of course, where there’s an advantage, there’s also a disadvantage when it comes to filing for Chapter 11 bankruptcy for a small business. Here are the following: 

  • Compared to Chapter 13 or Chapter 7, the Chapter 11 bankruptcy process can be longer, more complicated, and more expensive.
  • Your repayment plan is not a promise. If the judge believes your debt reorganization plan isn’t feasible, viable, or compliant, or if she believes your company won’t be profitable again after filing for bankruptcy within a reasonable period of time, she may reject it.
  • The compensation of a debtor’s “insider” workers (officers, directors, etc.) may be subject to stringent constraints as part of the Chapter 11 bankruptcy talks;
  • The company will need the court’s permission to take some measures throughout the restructuring phase and occasionally for a while after, especially those that fall outside the purview of the duties covered by the business’ plans for profitability and restructuring.

Are there particular requirements for Chapter 11 bankruptcy for Small Businesses? 

In Chapter 11, there are considerations to take, including: 

  • Even though you can put off paying payroll taxes, sales taxes, and unemployment taxes by filing for bankruptcy under Chapter 11, after that procedure is over and the automatic stay is in place, you must stay current on any new taxes that start to accrue.
  • The owners of small businesses frequently have to trade liability for credit. But if the debt is not fully settled according to the repayment plan, the creditor may still go after them.
  • Any indication that the proprietors used corporate funds to purchase non-essential things for personal use, could lead the trustee or creditors to breach the corporate veil.
  • Lease and executory contract decisions made throughout the restructuring process must be either accepted or rejected.

What does filing for bankruptcy under Chapter 11 entail in terms of fees, costs, and paperworks? 

The key to a successful Chapter 11 filing is to have everything ready before the actual filing, which is a time-consuming process that requires a lot of labor.

Documents and schedules that must be submitted with a Chapter 11 bankruptcy petition are listed below:

  • a schedule of every asset;
  • a schedule of all obligations (debts);
  • a schedule of executory contracts and unexpired leases; and
  • a statement of financial affairs.

The Chapter 11 bankruptcy filing fee, which includes administrative costs, is $1,738.00 ($1,167 filing fee + $571 miscellaneous administration fee) as of the time of writing. Nonetheless, fees for accountants, attorneys, and other services used to plan for and manage the bankruptcy process make up the majority of the costs associated with Chapter 11 bankruptcy. 

Prior to filing, legal fees must be paid, and the bankruptcy court must authorize any initial fees that are paid after filing. For financial security, the court will review any other payments made before filing that are greater than $600 and the filing fees. Also, the trustee is entitled to a quarterly minimum fee of $325.

In order to ensure that you have the correct schedules and documents and that everything is in order, having an accountant as well as a bankruptcy attorney is quite helpful. It’s also advised to finish any necessary appraisals before filing for Chapter 11.

After filing Chapter 11 bankruptcy, how should my plan look? 

Before the actual bankruptcy process even starts, you should have a very solid notion of your strategy for getting out of debt and back to profitability if you did your homework before filing. The judge’s confidence in your company’s ability to pay its creditors, emerge from bankruptcy, and return to prosperity is essential to Chapter 11 bankruptcy’s success.

  • The plan typically lasts for five years, during which the debtor will pay creditors monthly installments or have an agreement in place for a future payment based on the sale of assets.
  • A corporation may use the first six months of a Chapter 11 bankruptcy as a trial period to see how well it will fare and how much it will be able to repay its creditors over the following three to five years. 
  • The plan will be subject to creditor voting, and if the plan is rejected, the bankruptcy lawyer will have to make the case that the company is making every effort to pay off its debts and that the suggested plan is the best option for all parties.
  • For a small business, Chapter 11 bankruptcy is not always the best option. The least popular option among Chapter 7, Chapter 11, and Chapter 13 bankruptcy is this one. But Chapter 11 bankruptcy can be a fantastic alternative for bigger small businesses with the right amount of debt and the conviction that they have a strong strategy to return to profitability. 

If “is filing for chapter 11 bankruptcy right for my small bsiness in Aurora, IL?” a running question in your mind, you could use legal help. Reach out to one of our Illinois bankruptcy attorneys at Cutler & Associates, LTD., to find out if Chapter 11 bankruptcy is appropriate for your company.

Contact our Aurora Chapter 11 Bankruptcy Attorney Now!

Is filing for chapter 11 bankruptcy right fo my small business in Aurora, IL? That depends. A bankruptcy lawyer is the only one who fully comprehends the difficulties brought on by accruing debt in Aurora. The first step in putting your business back on its feet is to speak with an expert lawyer who focuses on small business bankruptcy.

Our attorneys at Cutler & Associates, Ltd. in Aurora  and its several law offices in Oakbrook, Terrace, Skokie, and Schaumburg will provide you with confidential legal assistance from the time you obtain your free consultation until your bankruptcy process is over. Together with receiving the facts you need to begin rebuilding your small business finances, you’ll receive the greatest legal assistance in bankruptcy court.  

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