Shutting Down A Business

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

Many businesses fall behind with taxes, creditors, and loan agencies. This spiral of debt can lead to Chapter 11 reorganization measures. What does this mean for a business? First off, chapter 11 reorganization does not liquefy your assets. What does take place is a reorganization of your business debt, hopefully in such a way to provide you with a clear way out of debt. It involves the courts. This does not mean you will lose your business. However if you do not prepare, this can happen.

Chapter 11 reorganization tries to right your business debt by calling in the creditors and those who you owe debt. The court looks over your contracts and financial responsibilities to decide whether you will be able to pull the business out of debt. They do not proceed on blind faith. Business owners must prepare a plan to get the business back on track. After the courts review the contractual and debt obligations, they may grant relief from the shackles of some debt.

How Chapter 11 Reorganization Makes Business Sense

The rationale behind chapter 11 reorganization is simple—save the business. If the business debt exceeds that of the income, then many times the stockholders or sole proprietor get nothing after the court pays the creditors. However, many businesses can resurface with some good sound restructuring of their debt. The courts want to keep businesses afloat. Therefore, they do their best to evaluate honestly what they can do for the business.

Chapter 11 reorganization, as opposed to Chapter 7, does not sell assets to cover the debt. If a business owner is unprepared when dealing with the courts, the judge may decide the creditors should own the company, or the court may simply liquefy the business to pay off the contractual obligations and debt.

Chapter 11 reorganization can include canceling debts for unsecured loans, union contract obligations, other operational contracts, and real estate leases. This reorganization allows the company to get out from under some debt and hopefully bounce back to a profitable company. That is the goal of this type of reorganization. Businesses that fail can hurt the economy, so keeping these businesses going can help a community and much more.

Chapter 11 reorganization is not the end of a business. It can be a new beginning. With many businesses, the process seems overwhelming and insurmountable, but with help from professionals, the company can benefit.

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