It takes a lot of money to keep a business running. There are rent payments or mortgages for each facility your company operates, as well as the costs of worker wages and benefits. The larger and more successful your company becomes, the more the cost to operate the business will grow. Eventually, if profit margins shrink or sales decrease, you may find your company operating in the red.
An occasional month where you don’t break even when you typically generate sufficient profits isn’t of any real concern. It is common for every business to experience downturns and fluctuations in revenue. However, when the challenges persist for months, you may have to start questioning if your current operations are truly sustainable.
It may be possible for you to take control of company debts and rework your budget while deferring any aggressive collection activities. A Chapter 11 bankruptcy gives the company an opportunity to reorganize its debts and restructure the business to potentially keep the company open after an extended period of financial hardship.
How Chapter 11 bankruptcy works
Chapter 11 bankruptcy proceedings will require that a company carefully review its finances and current operations and attempt to make changes to keep the company afloat. For example, the business may need to reduce what products or services it offers to reduce its operating expenses.
Sometimes, reorganization means closing down certain facilities and reducing the company to components that have historically been able to generate adequate revenue. When a business files for Chapter 11 bankruptcy, it will present the courts with detailed information about its assets and debts, along with a plan to reorganize the company.
After filing, the company can negotiate with individual creditors to make changes to its debts. The reorganization process itself will typically take multiple years and will involve the oversight of a court-appointed trustee. At the end of the process, some unsecured debts may be eligible for discharge, the company may have eliminated and paid down most of its other obligations.
While filing for bankruptcy is a drastic step, it can potentially protect your business from closure in the future. Learning more about the most common types of business bankruptcy, like Chapter 11 proceedings, can help you determine the best solution for your organization’s financial challenges.