Can a Small Business Owner Keep Their Business Assets in Chapter 11 Bankruptcy?

Contrary to what many people think, business owners are not at risk of losing everything in Chapter 11 bankruptcy.

Many business owners want the protection of Chapter 11 bankruptcy because they are struggling with business debt that they cannot repay. However, they are still reluctant to file because they fear that they will lose their business assets. Fortunately, business owners can file Chapter 11 and not lose all of their property, although they may choose to sell some assets. Below, our West Palm Beach Chapter 11 bankruptcy lawyer explains in further detail.

Liquidation Bankruptcy vs. Reorganization Bankruptcy

Chapter 11 is one type of reorganization bankruptcy, along with Chapter 13. During a reorganization bankruptcy, debt is restructured into a repayment plan. While some debt may be discharged or eliminated during Chapter 11, the majority of it is repaid to creditors. As such, there is no reason to liquidate business assets or the personal property of the business owner.

Liquidation bankruptcies, such as Chapter 7, do place filers at risk of losing some property. This is because the trustee, the individual appointed by the court to oversee the bankruptcy case, can sell a borrower’s property to try to repay as much debt as possible in Chapter 7. Any remaining debt is discharged, or eliminated, if the debt qualifies as being dischargeable.

Repayment Plans in Chapter 11 Bankruptcy

Repayment plans in Chapter 11 bankruptcy vary in length, but generally speaking, they extend for three to five years. The length of the repayment plan is determined by the specific terms of the reorganization plan proposed by the borrower and approved by the court. While the repayment plan requires that most of the debt be repaid, it is still beneficial for business owners. It provides them with a longer period to repay the debt, and because the automatic stay remains in place, it also stops calls from creditors and debt collectors trying to recover debt.

When are Assets Sold in Chapter 11 Bankruptcy?

Liquidating assets is not the primary focus of Chapter 11 bankruptcy, but property may still be sold in some cases. Sometimes the sale of assets is part of the reorganization plan, and other times, it is deemed necessary to streamline operations or to raise capital.

Borrowers can also decide to sell property during Chapter 11, according to Section 363 of the Bankruptcy Code. This can be done either before or during the reorganization process.

Call Our Chapter 11 Bankruptcy Lawyer in West Palm Beach Today

If you have considered filing Chapter 11, you may understand the benefits it has for your business, but you may also have many reservations about filing. At Brian K. McMahon, P.A., our West Palm Beach Chapter 11 bankruptcy lawyer can provide the answers you need and guide you through the process so you and your business are protected. Call us today at 561-658-1789 or chat with us online to schedule a consultation with our experienced attorney and to learn more about how we can help.