Successful businesses must be able to respond quickly to changes in the markets, supply chains, or consumer preferences. Acquiring debt can help a business to be more agile, but excessive debt can hinder its flexibility.

When servicing debt interferes with your business’ performance, it may be time to consider declaring bankruptcy. Depending on the form of bankruptcy protection you seek, you may be able to continue operating while you pay down its debt. A Freehold business bankruptcy lawyer understands the pressures business owners face and can help you choose the bankruptcy solution that is right for your company.

Advantages of Business Bankruptcy

Excessive debt can sap energy from your operations. Your business may miss opportunities to expand or innovate if it must devote too much capital to servicing debt. Seeking bankruptcy protection can offer an opportunity to restructure debt and make business operations more efficient.

The effect of debt can be devastating for a business. Suppliers might refuse to continue providing product, impeding operations. Landlords might begin eviction proceedings. Employee morale suffers when it becomes known that a company is in financial trouble, and valued staffers might leave to work with competitors.

Bankruptcy can alleviate many of those problems. Reorganizing the business and restructuring its debts can enhance the business’ viability over the long term. If your business is a sole proprietorship or partnership, your personal assets could be at risk if the business fails. A Freehold attorney evaluates your specific business needs and suggest a form of bankruptcy protection that meets your goals.

Choosing the Right Form of Bankruptcy Protection

Several forms of bankruptcy protection are available to business owners. Each has advantages and disadvantages, but there is a viable option for every client.

Chapter 11

Many business owners hope their business survives them, or they may believe the business has more value than simply the price of its liquidated assets, or both. Chapter 11 business bankruptcy protection might be the right solution in such cases because it allows a company to continue operating while it reorganizes to be more profitable and restructures its debts.

The company must submit a detailed plan of reorganization to its creditors. The plan must clearly articulate how the company will reduce costs and operating expenses, and contain a schedule for paying down debt. The plan must address how each class of creditor—secured creditors, priority unsecured creditors, unsecured creditors, and shareholders—will be paid. The plan must offer the same repayment schedule to all creditors in the same class.

Creditors can object to the business’ plan and submit alternative plans of reorganization. A Freehold attorney can negotiate to devise a workable plan of reorganization that supports the owners’ business interests. When a majority of the creditors in each class support a plan, a court will confirm it and the business begins streamlining its operations and paying debt.

Subchapter 5

The Chapter 11 bankruptcy process can be expensive and labor intensive, making it an unwieldy solution for smaller businesses. However, Subchapter 5 is a procedure introduced in 2020 that offers many of the advantages of Chapter 11 bankruptcy protection in a quicker and more efficient process. It is open to businesses with less than $7,500,000 in debt.

Like Chapter 11, businesses seeking protection under Subchapter 5 must file a plan of reorganization describing how it will maintain revenues and pay its creditors. Unlike Chapter 11, however, the debtor is the only party that can file a plan and creditors cannot refuse to accept it. The plan must pay secured creditors at least the value of their collateral, but unsecured creditors have no right to full payment.

Chapter 7

Sometimes business owners want to shutter their enterprise and walk away. When a company files for Chapter 7 business bankruptcy protection, a trustee assumes control of the business. The company ceases operation, the trustee liquidates its assets, and the business’s creditors receive the proceeds.

Investigate Business Bankruptcy Options With a Freehold Attorney

If excessive debt is limiting your business’ potential, seeking bankruptcy protection could be a wise move. Gillman, Bruton & Capone has experienced advocates who know how difficult this situation can be and what you could do to come out of it in a better position. Contact us now for a free case evaluation and learn how a Freehold business bankruptcy lawyer can advise you during this time of transition.