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Can You Continue to Run Your Business if You File for Bankruptcy?

If you’re a business owner facing financial hardship, you might be wondering whether filing for bankruptcy is a viable course of debt relief. A straight bankruptcy — known as a Chapter 7 — means the business ceases to operate and its assets are liquidated to pay back creditors. However, by filing for Chapter 11 reorganization, you can keep your business running while restructuring your debt and getting back on a solid financial footing.

Whether your business has had difficulty paying rent, payroll or vendors, Chapter 11 can offer economically advantageous solutions by allowing for a modification of your financial obligations.

By filing a Chapter 11 bankruptcy, you can not only keep your business running, but also:

  • Stop collection actions — Once you file, a stay is automatically put into place for the duration of the proceeding, prohibiting creditors from seeking payment, evicting you, issuing a bank levy, seizing your property or taking other action.
  • Structure a payment plan — The primary purpose of Chapter 11 is to develop a financial plan that will help you repay creditors, keep the business running and allow it to grow. You might have the option to change the payment due dates or modify interest.
  • Retain control over your company — In Chapter 11, your business is not typically placed under the direction of a bankruptcy trustee. Instead, you can continue to operate the business as a “debtor in possession” during the proceedings.
  • Obtain new financing — A debtor in possession can often qualify for loans to provide liquid funds for operations while the Chapter 11 repayment plan is completed.

Depending on the complexity of your case and the company's size, a restructuring plan can last anywhere from months to a few years. The plan must also be approved by your creditors.

Small businesses — those with debts less than $7.5 million — can avail themselves of Subchapter V, a streamlined version of Chapter 11 that is faster, more economical and less cumbersome to carry out. Similar to a Chapter 13 for individual debtors, Subchapter V allows for a three- to five-year repayment plan into which the debtor devotes as much disposable income as possible. There is no need for creditors’ approval and many of the usual Chapter 11 fees are waived. What’s more, you can retain your equity in the company without investing new capital.

It’s best to discuss your options and remedies for relief with an experienced business bankruptcy attorney, who can help you decide whether restructuring your debts through Chapter 11 or Subchapter V is preferable to discharging them through Chapter 7.

The skilled bankruptcy attorneys at Rountree Leitman & Klein LLC offer strategic advice for business owners throughout Georgia about whether Chapter 11 might be right for them. Call 404-737-9623 or contact us online to schedule a free consultation in our Atlanta office.

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