What Happens to Business Debts Under Chapter 11 Bankruptcy?
Below, our West Palm Beach bankruptcy lawyer explains what happens to business debts in Chapter 11 bankruptcy.
Many business owners have found themselves in the position of their debts piling up. Maybe your employees are even wondering if they are going to get paid. Even if you have a plan to repay your debts and start making a profit, you may need time to implement it.
Even if you are in this position, you are not alone. In 2022, almost 5,000 businesses throughout the country filed for Chapter 11 bankruptcy. Contrary to what many people believe, debt is not fully discharged in Chapter 11, but that does not mean this option will not bring you some relief. Below, our West Palm Beach bankruptcy lawyer explains more.
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is often referred to as a ‘reorganization bankruptcy.’ During a Chapter 11 bankruptcy, businesses restructure their debt into a repayment schedule. This type of bankruptcy allows business owners to continue business operations while going through the process.
Filing for Chapter 11 is not a death sentence for any business. Instead, it is an opportunity to generate profit, redefine the business, and come out of the process even stronger. Many profitable businesses have filed for Chapter 11 and have come back even stronger, including Texaco and General Motors.
Does Chapter 11 Bankruptcy Discharge a Business’s Debt?
Most of a business’s debt is not discharged, or eliminated, in Chapter 11 bankruptcy. Instead, the court will automatically issue an automatic stay once you have filed Chapter 11. The automatic stay prohibits creditors and lenders from taking legal action against you or trying to collect the debt until your bankruptcy case is closed. The automatic stay can give you time to understand your expenses, take stock of your assets, and create a repayment plan.
Chapter 11 is beneficial for both business owners and creditors. After a repayment plan is established, it gives business owners more time to repay the debt without fear of legal action, such as facing a lawsuit. Creditors can benefit from it because they will often recover more of the debt than if the business had closed its doors.
What Debts Cannot Be Discharged in Chapter 11?
While most of a business’s debts are restructured into a repayment plan in Chapter 11, some debts are discharged entirely. For example, if your business is struggling with a significant amount of tax debt, you cannot discharge this type of debt in bankruptcy. However, during Chapter 11, you can include non-dischargeable debt in the repayment plan, making it easier to repay and giving you more time to do so.
Our Chapter 11 Bankruptcy Lawyer in West Palm Beach Can Help You Through the Process
Filing for Chapter 11 is a personal and complicated matter for business owners. At Brian K. McMahon, P.A., our West Palm Beach Chapter 11 bankruptcy lawyer can provide the support and direction you need as you go through the process to give you the best chance of a favorable outcome. Call us now at 561-658-1789 or contact us online to schedule a consultation and to get the legal help you need.