Montana business owners experiencing financial troubles may benefit from filing bankruptcy. There are two main types of bankruptcy that business owners can file: a Chapter 7 bankruptcy or a Chapter 11 bankruptcy.
Chapter 7 versus Chapter 11
A Chapter 7 bankruptcy is often a better choice for companies that intend to cease operations and go out of business. Therefore, if you want to stay in business, but just need to get out from under overwhelming debt, a Chapter 11 bankruptcy might be better for you.
A Chapter 11 bankruptcy involves a reorganization and restructuring of your debt, with the goal of becoming financially stable again.
Next steps after filing
After you file for a Chapter 11 bankruptcy, you will work with a committee representing your creditors. The committee helps you set up a reorganization plan for your business. The plan is designed to pay off your debts and help you start turning a profit again.
The reorganization plan must be in the best interest of your creditors. You should use your best efforts to develop the reorganization plan with the committee because if you cannot, your creditors might propose a plan that you are required to follow.
Creating your reorganization plan
There are various options that are available to you when making your plan. You can choose to sell assets to pay creditors, renegotiate your debts or downside your business operations.
Once you have a proposed plan, you present it to the bankruptcy court for approval. If it is approved, you must fulfill your obligations under the plan.
Advantages and disadvantages
The biggest benefit to filing a Chapter 11 bankruptcy is that it allows you to remain in business while your reorganization plan is in process. Ideally, this means you will continue to make money that can help you pay your creditors during this time.
Your creditors might be more willing to work with you when they learn that you have filed a Chapter 11 bankruptcy. They know that the more likely you are to succeed with your reorganization plan, the more likely they are to receive the money they are owed.
There are drawbacks to filing a Chapter 11 bankruptcy. Your reorganization plan must be realistic and manageable.
A Chapter 11 bankruptcy is not a quick process. You are going to be paying off your debts over time, and staying on track with paying the debts can be challenging, especially in an unpredictable economy.
You also may not be able to make certain decisions without court approval, such as liquidating assets, entering contracts or making decisions involving business operations.
This can be challenging to business owners who are used to the independence and autonomy that comes with being in control of a business and making their own decisions.
Professionals are here to help
You may think a Chapter 11 bankruptcy sounds like exactly what you need, but the process can be costly and time-consuming.
It is best to thoroughly research your options with the help of a bankruptcy attorney before deciding to file. If you do file, your bankruptcy attorney can guide you through the process and help you stay on track.