Helping Utah Businesses File Chapter 11 Bankruptcy
Finding ways to ensure that your company can continue to operate
Corporations, partnerships and sole proprietorships beleaguered by debt may seek bankruptcy court protection from creditors by filing for Chapter 7 or Chapter 11 bankruptcy. Filing for Chapter 7 is essentially surrender, ending the business through liquidation while a Chapter 11 filing permits the enterprise to continue operating while it attempts to reorganize its debt. At Huntsman | Lofgran, our legal team helps businesses determine if they may qualify for Chapter 11 bankruptcy and provides negotiation and other counsel throughout the debt reorganization process.
As with Chapter 13 bankruptcy, Chapter 11 is a chance to reorganize
The idea behind Chapter 11 bankruptcy is that the value of the business is greater if the business is sold or reorganized as a going concern than if it’s dismantled by a Chapter 7 liquidation of its assets.
The Chapter 11 bankruptcy is similar to that of a Chapter 13 personal bankruptcy in that the filer commits to repay all or part of the debt cited by a repayment program that the bankruptcy trustee and creditors develop, and the bankruptcy court approves. If the business is a sole proprietorship or partnership, personal debt and assets may be involved, (and partners may subsequently need to file for personal bankruptcy themselves).
Pluses, and some minuses
Protection under Chapter 11 bankruptcy can be considerable, and it includes:
- The business typically is permitted to continue to use, sell or lease property, as it would in everyday business.
- The automatic stay that goes into effect when the petition is filed not only suspends all judgments, collection activities, foreclosures and repossessions of property against the business, but also all litigation.
- The court may allow the business to cancel executor contracts, (e.g., labor union contracts, supply and operating contracts, real estate leases) if canceling them is financially favorable to the business and its creditors.
- The business may acquire financing and loans on favorable terms by giving the new lender either a court-approved “superpriority” over other unsecured creditors or a lien on its property.
There can be pitfalls as well, such as:
- Creditors always have the option of petitioning the court for a relief from the automatic stay.
- The business’s continued operation may encourage motions contesting the use of cash collateral and new credit and litigation over unfulfilled contracts and unexpired leases.
- The business may have to make either periodic or lump-sum cash payments, or provide an additional or replacement lien, to ensure the value of the creditors’ property interests is adequately protected.
- If the business’s debts exceed its assets, the bankruptcy restructuring may result in the creditors assuming possession rights from the business owner.
Contact our Salt Lake City lawyers so you know what you’re getting into before you file
There is a host of regulations and circumstances that may make Chapter 11 bankruptcy the wrong choice for your business, so be sure to speak with one of our knowledgeable bankruptcy attorneys at Huntsman | Lofgran before you make your move. Call us at 801.838.8900 today or contact us online to arrange for a free initial consultation. Put our knowledge and experience to work for you.