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Can a business declare bankruptcy and stay open?

On Behalf of | Apr 13, 2022 | Bankruptcy

When you imagine a business declaring bankruptcy, you may assume that it has to close. And this is true in some cases, such as when they use Chapter 7 bankruptcy. This is liquidation bankruptcy, meaning the assets that the business holds have to be sold and the money used to repay the debt. After that, the business is going to close down.

You have debt problems at your business, but you’re not at all interested in closing your doors. Is there any way for you to declare bankruptcy to deal with that debt but then stay open after the fact so that you can continue running your business for the foreseeable future?

Using Chapter 11

This is possible, and the key is to use Chapter 11 bankruptcy, rather than Chapter 7. Instead of liquidating your assets, Chapter 11 bankruptcy gives you a repayment plan. Your debt gets restructured and put into this plan. You are then given a total that you have to pay every month. As long as you do so, you slowly pay off the debt that you accumulated, but your business doesn’t have to close and you don’t have to get rid of your assets.

This is most beneficial in a situation where you just don’t have as much income as you anticipated. This has made it impossible for you to pay off all of your debts right at the moment. However, your business is still making money, so you don’t want to close entirely, and you anticipate growing in the future.

Chapter 11 gives you a chance to this by spreading the money out so that you have years to pay it off, solving your problem at the time.  It also allows you to keep your business open so that your income can continue or even increase. Many businesses have successfully used this to put themselves in a better financial situation without having to close.

If you are interested in bankruptcy, you can see how important it is to consider all of the options you have and to really think about the different impacts they are going to have on your company.