The Choice Among Chapter 11 Bankruptcy and Out-Of-Court Restructuring
In times of financial distress, many companies are faced with difficult decisions, and one of their most common dilemmas is choosing between out-of-court restructuring and Chapter 11 Bankruptcy. Let’s see the advantages entailed by each one of them.
What Is Chapter 11 Bankruptcy?Chapter 11 Bankruptcy is a form of bankruptcy which allows business owners to reorganize and restructure their debts. This is the most common form of bankruptcy among big companies which need more time to reorganize their business processes, assets, and obligations. Chapter 11 Bankruptcy requires a thorough reorganization plan. This procedure can turn out to be fairly complex, and it requires significant time and energy. In some cases, this is the most appropriate solution for a company who wants to keep it business afloat while filing for bankruptcy.
What Are the Advantages of Filing for Chapter 11 Bankruptcy?Filing for Chapter 11 Bankruptcy allows you to continue your business operations as usual while the procedure is carried on:
-You are protected against invasive creditors by what is called an automatic stay
-You have the right to be the first who comes forward with a reorganization plan
-You get plenty time to reorganize your business for success
-Chapter 11 allows you to discharge any type of debt even those that are typically considered nondischargeable
-You get to repay your debts over a longer period of time by dividing them into smaller installments
What Is an Out-of-Court Restructuring?An out-of-court restructuring is a method of debt restructuring which can substitute bankruptcy and, as its name suggests, does not involve the formal court environment.
Out-of-court restructuring, also known as 'workout' is a negotiation between the company and its creditors. The purpose of this bankruptcy alternative is to reach a mutually beneficial solution regarding the debt repayment.
What Are the Advantages of Out-of-Court Restructuring?-You avoid the inevitable stigma of bankruptcy
-You still keep your right to file for bankruptcy at a later time
-All the creditors will agree with the workout plan proposed during the negotiations
-You save time and money by not appealing to the court
-There are several out-of-court restructuring options you can choose from such as reorganizing your business operations, selling assets, or getting a loan
What Option Should I Choose?Only an experienced commercial lawyer can determine what is best for your company. If your business requires more flexibility you can reorganize your activity and restructure your debts in a shorter time, a workout might be the best solution.
In case you deal with a large number of creditors from different locations, it might be hard to get them all together to negotiate during out-of-court restructuring. Also, if your debt situation is too intricate or the creditors are not willing to negotiate, it might be better to opt for Chapter 11 Bankruptcy.
If you are not sure whether Chapter 11 bankruptcy or an out-of-court restructuring is the right solution for your financial problems, contact a lawyer who has proven expertise in financial litigation.