For some businesses or wealthy individuals, it may become impossible to pay off all debts that have been accrued over time, and once a small business or a person determines that they cannot possibly pay off all these debts, the time has come to declare bankruptcy and find debt relief within a bankruptcy court so that everyone, debtor and creditors alike, can arrive at a resolution everyone is satisfied with. No one likes to be bankrupt, but if it happens, there is aid that a bankrupt company can reach out for, and a bankruptcy attorney may be found at a bankruptcy law firm to help keep the proceedings accurate and fair. Without the help of a bankruptcy law firm, a debtor company may find itself dealing with very harsh consequences of its bankruptcy in court, so reaching out to such a law firm to find debt relief is an important step to take. How can this be done, and what can a small company expect when they file for chapter 11 bankruptcy and take this case to court?
As of 2013, for one example, a total of 8,980 chapter 11 bankruptcy cases were declared across the United States, mainly where smaller companies are concerned, although sometimes wealthier individuals may declare this type of bankruptcy as well, and the quest to find debt relief begins as soon as the debtor declares their bankrupt status. These companies, statistically speaking, are those with under $10 million in annual revenue and have fewer than 50 employees. It has also been found that these companies most often declare bankruptcy on their own initiative to find debt relief, although in some cases, the creditors will bring up a chapter 11 bankruptcy case first to get their owed money. A company going through a chapter 11 bankruptcy case can start by reaching out to local law firms, such as searching “bankruptcy Fort Worth” for bankrupt companies in Texas, or “bankruptcy law firm San Francisco CA” for California-based companies who face chapter 11 bankruptcy. The managers of a bankrupt company may get consultations from the atto0rneys who work at such a law firm (this may or may not incur a fee) and hire one or more lawyers to represent and protect them with the law during the events of a bankruptcy court case. Having legal help can make the process smoother, faster, and more fair for the debtor, certainly something to be desired.
During the chapter 11 bankruptcy case, the debtor company may be considered DIP, or “debtor in possession,” meaning that the debtor will still own its business and continue to function as normal, but there may be conditions attached. A DIP party may not undertake major financial actions without the creditors’ and court’s knowledge and approval, such as buying or selling property outside of what the business normally buys or sells, and the DIP party may not hire lawyers without permission, nor can it liquidate anything at this phase. And if a debtor has been found to be acting in bad faith or dishonest practices during or right before the chapter 11 bankruptcy case, it may not be DIP at all. For a company to find debt relief, acting openly and honestly is certainly the right move.
During the case, the debtor may have the opportunity to formulate a reorganization plan, which is a course of action that will allow the easier repayment of debts to the creditors, and the debtor may have several months where it may devise this plan, often with the aid of bankruptcy lawyers to make the process of finding debt relief easier. Most often, such a plan is created, presented to the court and creditors, then approved and put into action. In some cases, however, the debtor may fail to create a plan in time or its plan may be rejected, and in this case, the creditors will devise their own plan. Either way, the debtor company may or may not stay together after the bankruptcy case, and may liquidate and sell off many assets to pay off its debts. The creditors may not actually receive the total amount of the debts owed, but they may have to make due with a partial amount based on the accepted reorganization plan.