Shutting Down A Business

Shutting down a business? Here's how a shut down can affect you personally.

You have filed Chapter 11 business bankruptcy, and within the 100-day limit you have presented a recovery plan to the court. The plan you gave included all assets, liabilities, and business affairs so the creditors could make a reasonable assessment about your ability to repay your debts. The court has polled the creditors and they have either changed or accepted it. In most cases, you will be the “debtor in possession” of the business and required to run it like you were the court appointed trustee. If your business is a corporation, other than the investment you made into the company, your personal assets are not at risk. If yours is a sole proprietorship, the bankruptcy proceedings include both your business and your personal assets.

What You Need to Know as a Chapter 11 Business Debtor

As a “debtor in possession,” you still continue to run the business normally. However now you must account for all business property, examine all claims against the business and object to those you believe are invalid. Also the court may force you to file status reports regularly, as well as filing tax returns for the business.

If your business has debts that do not exceed $2,000,000, the court considers you to be a “small business debtor.” Your business is still running and creditors are not calling every hour on the hour, but your problems are not over. You must work to make the business profitable while making all the payments and filing all the reports the court has deemed necessary. As “debtor in possession,” you may use, sell, or lease property of the company in the ordinary course of business without prior approval of the court. When you as a chapter 11 debtor need operating capital, you can get it from a lender by giving the lender a court-approved "super priority" over other unsecured creditors or a lien on property owned by the business.

This information is only the tip of the Chapter 11 iceberg, but it should point out the best course of action is to avoid Chapter 11 business bankruptcy at all costs. It is not a surefire method for recovery and the long hours put into saving the business may be much greater than the long hours you put into building it. However, your Chapter 11 business does have a chance for survival and there are countless examples of those who have done just that.

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