Making Chapter 11 Bankruptcy Work for You: Three Ways to Ensure Successful Reorganization
Business corporations, partnerships, and individuals whose debt exceeds the maximum limit for Chapter 13 bankruptcy turn to Chapter 11 bankruptcy, also known as reorganization, to essentially save their businesses and pay off the debt they can no longer keep up with over time.
Chapter 11 can offer a huge relief to business owners who have exhausted their debt management options, allowing them to propose a debt repayment plan and start fresh. However, failure to have that repayment plan approved or failure to follow through with an approved plan can result in forced liquidation, which means the debtor is sadly past the reorganization stage.
In order to ensure you successfully reorganize your business finances and have a smooth experience with Chapter 11 bankruptcy, it is important to do the following:
- Do not incur additional debt. The IRS advises those pursuing Chapter 11 reorganization to avoid incurring further debt, as this is the best and most effective way to take full advantage of the bankruptcy laws and create a fresh slate. It is crucial to stay on top of all your financial obligations, including your payroll and federal income tax balances. Incurring additional debts after you have filed for Chapter 11 places you at risk for falling further behind and jeopardizing the progress you have already made.
- Successfully complete your plan. The only way you will receive a discharge of your debt when you file for reorganization is to successfully complete your repayment plan. Completing your plan also helps you avoid having to resort to Chapter 7 liquidation bankruptcy, which involves selling all of your remaining assets to pay off creditors as fully and as soon as possible. Under liquidation, the court considers debts such as taxes, various government debts, child support, and student loans to be priority over other creditor debts, so your assets are sold and used to pay for these balances first, before other creditors are paid. Where Chapter 11 allows you the chance to restructure your business finances, Chapter 7 requires you to go straight to your assets to gain freedom from your debt. This kind of bankruptcy is usually only utilized as a last resort.
- Talk with your tax law attorney about dischargeable tax debt. Another way you can take advantage of the benefits of reorganizing your company’s finances through Chapter 11 is by speaking with your tax attorney to make sure you understand which debts are dischargeable once you have completed your repayment plan. For example, you may be released from liability for certain taxes depending on the circumstances of your case. It is also helpful to talk with your attorney about your tax refunds while undergoing bankruptcy, as your refunds may be delayed in order to pay off your debts.
Initiating financial reorganization through filing for bankruptcy is never a desirable option, but at times it may be the best and only option for businesses and individuals with large amounts of debt and assets who want to start fresh. If you have concerns about Chapter 11 and how it will impact your company’s wellbeing, speak with a competent Cook County bankruptcy lawyer today. Call the Law Offices of Eric G. Zelazny at 708-888-2299 for a one-on-one consultation.