One of the most historic golf courses in eastern Washington State, the Spokane Country Club, recently joined the growing list of U.S. corporate entities to file for Chapter 11 Bankruptcy due to mounting financial troubles. The country club selected Chapter 11 in order to avail itself of the opportunity to reorganize and keep its business alive under this “reorganization” bankruptcy provision. Chapter 11 bankruptcy is often used by businesses, including corporations, partnerships, or sole proprietorships, seeking to reorganize their financial affairs.
The ins and outs of Chapter 11
Once a business decides to file for Chapter 11 bankruptcy, it must propose a debt reorganization plan to the bankruptcy court. This plan can be designed to keep the business functioning while also providing for the repayment of creditors over time. The petitioning business (“debtor in possession”) is generally allowed to operate the business without interference from the bankruptcy process, provided it complies with the reorganization plan. Reorganization plans are typically evaluated and approved by a committee of the company’s creditors who hold the seven largest unsecured claims against the debtor company.
Pros and cons of Chapter 11 bankruptcy proceedings
Chapter 11 bankruptcy proceedings offer several benefits to corporate entities or partnerships that are seeking relief from growing debts. These include:
- Retention of Control ― After filing for Chapter 11, a business is still able to continue its daily operations and maintain control of its activities
- Flexible Reorganization Plan Length ― Although typical Chapter 11 plans last between three and five years, the bankruptcy court may occasionally approve a plan with a longer term, allowing corporate debtors to make payments over an extended time period
- Benefit of Automatic Stay ― As with Chapter 7 and 13, Chapter 11 filers also benefit from an automatic stay, halting all lawsuits and collection activity by creditors
- Maintain Eligibility for Conversion of the Petition to Chapter 7 ― Except in particular circumstances (such as involuntary bankruptcy proceedings), a Chapter 11 debtor possesses a single absolute right to convert the case to Chapter 7
- Possible Release From Certain Contracts ― A Chapter 11 filing may excuse the debtor from labor union, supply, operating, or real estate contracts
- Expedited Proceedings for Small Business Debtors: ― This is a special fast-track bankruptcy procedure for those debtors qualifying as a “small business” (engaged in commercial or business activities with less than $2.3 million in debt)
Despite the numerous advantages of Chapter 11 proceedings for businesses, it is important to remember that such a process is complex and does not guarantee that the company will survive. An experienced bankruptcy attorney should be consulted to help review your options.
The bankruptcy attorneys at BK Lawyers LLC can help you evaluate your business’s liabilities to determine if Chapter 11 will provide effective debt relief. Contact us to schedule your free initial consultation.