Chapter 11 – Business Bankruptcy
The common saying is that every Chapter 11 small business bankruptcy is filed too late after the owners assets are lost. Chapter 11 often works very similar to a Chapter 13 but Chapter 11 has a very high failure rate because reporting requirements and costs are so high. Some persons that would like to file as a Chapter 13 are forced into a Chapter 11 because Chapter 13 is limited to about $360,000 in unsecured debt and $1,250,000 in secured debt. Chapter 13 amounts are occasionally slightly increased but Chapter 13 can’t manage large cases.
Chapter 11 is often used for businesses but individuals with large amounts of debt can file a Chapter 11. When I am faced with a client that marginally has debts that are too high for a Chapter 13 I often work to reduce those debts so that they can file as a Chapter 13. Chapter 11 cases can often obtain the same results or better results by filing the case as a Chapter 7 or 13.
If you are considering a Chapter 11 in Kentucky you should always see if the problems could be handled by a Chapter 13 or Chapter 7. Chapter 13 can only be filed for an individual and not a corporation but often if the business owner files a Chapter 13 it can effectively handle the business debts of a proprietor, or corporation that is solely owned by an individual or couple. A Chapter 7 can often be filed for a business and allow the business to continue operations after filing Chapter 7 in a new or restructured form. This allows the business to let unprofitable properties that don’t pay rent and costs of operation close and keep open other units that are profitable.
The key is to take a hard look at cash flow and either a business is profitable or it isn’t. If the business has a negative cash flow it must be closed or restructured into something that is profitable. Often choosing a Chapter 7 or Chapter 13 for the Kentucky business owner is better than a Chapter 11 which can guarantee a business closing.