Deciding whether to file Chapter 11 is a difficult decision. Although you may worry about the stigma surrounding your business filing for bankruptcy, Chapter 11 can be a good option, depending on your situation.
Chapter 11 can allow you to get rid of business debt and reconfigure your business to a more profitable structure. Before you decide if Chapter 11 is the right choice for your business, here are some guidelines to consider.
Is your core business still profitable?
Your business could be a good candidate for Chapter 11 if you can still preserve your business after eliminating some debt. Chapter 11 is meant to allow a business to relieve itself of burdensome debt so it can continue to function successfully.
However, if your business is struggling overall and getting rid of debts may not help you turn profits around, Chapter 11 might not be the best choice.
Do you have access to financing?
You must generally have access to financing for Chapter 11 to be a realistic option. Indiana businesses commonly enter Chapter 11 with plenty of debts already amassed from missing payments to creditors.
Bankruptcy comes with administrative costs and fees that quickly add up. In addition to having enough cash to operate your business during bankruptcy, you must pay the costs associated with bankruptcy.
Many business owners cannot rely on their business cash for these fees and seek financing. If you do not believe you will qualify for financing, you may want to rethink Chapter 11.
Are you concerned about scrutiny of your finances?
The Chapter 11 bankruptcy process involves scrutiny of your business’s books, financial transactions and actions of directors and officers prior to bankruptcy filing. You must be prepared to be transparent with your business and financial decisions that led to your bankruptcy.
Carefully review the actions of your business and its management in the period prior to bankruptcy. If there is anything you believe could expose you to liability, learn about the potential implications before deciding to file.
Overall, there are many reasons that Chapter 11 is a good idea for a business but many reasons it should sometimes be avoided. Knowing if it is right for your business requires an individualized approach.
