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What is Chapter 11 bankruptcy?

There are a variety of different options for businesses who are struggling financially. In Boston, a person who owns a business may undergo financial difficulty from a downturn in profits or a seasonal business cycle. If someone is struggling with business debt, there are options available. One of those is Chapter 11 bankruptcy. But, what is Chapter 11 and what can it do for you?

According to information from the United States Courts , Chapter 11 bankruptcy is intended for businesses that have significant levels of debt. This could include a variety of different types of loan agreements with high interest rates. If a business is unable to pay back loans, it has a significant problem. Chapter 11 also may be used by consumers in some rare cases. Chapter 11 bankruptcy can be used by corporations or small businesses to help them reorganize their debts and get back on the track to profitability.

The main goal of filing for Chapter 11 bankruptcy is for a business to regain profitability and be able to pay off debt. The first step in the process of filing for Chapter 11 bankruptcy is to file a petition with the bankruptcy court. After this, all collection of the business's unpaid debts will be stayed, or cease, until the bankruptcy proceedings are finished. This means that debt collectors are unable to collect on debts included in the bankruptcy. The next step is to develop a repayment plan for creditors through the court. This can involve reorganization and discharge of some debts.

The goal of Chapter 11 bankruptcy is to reorganize debts and allow a business to become healthy again. It gives businesses additional time to renegotiate their financial terms with creditors; the process of doing so, however, can be complicated. Chapter 11 bankruptcy for individuals is more complicated and will be elaborated on in an upcoming post.

Source: U.S. Courts, "Chapter 11 - Reorganization Under the Bankruptcy Code," accessed on Oct. 4, 2014

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