When business owners decide to file Chapter 11 bankruptcy, they suddenly have a lot on their plate. After all, pursuing debt relief on top of running a business can be complex.
It is often beneficial to speak with a lawyer to understand all of the steps required of you when filing Chapter 11 bankruptcy, but here are five critical steps you must remember:
1. Take stock of the business’s assets
Like in other chapters of bankruptcy, you must take inventory and assemble a list of the company’s property, such as:
- The business’s assets
- General income
- Debts and liabilities
- Other business expenses
Business owners need this information to file the bankruptcy petition as well as the disclosure statement.
A disclosure statement is an official document consisting of all of this information and business affairs. According to the United States Courts, this document allows creditors to judge whether the reorganization plan will be effective or not. This statement is not always necessary in small business cases, though that generally depends on the court’s decision.
2. Collect financial documents
Documents that provide insight into the business’s financial situation are also necessary for the disclosure statement. Therefore, business owners will have to obtain copies of financial documents, including:
- Tax returns
- Bank statements
- Operating reports
Usually, you must provide the bankruptcy court with copies of all the documents from the last year.
3. Create a reorganization plan
Along with the disclosure statement, businesses proceeding with Chapter 11 bankruptcy must create a reorganization plan. The goal of this plan is to:
- Restructure the business’s finances;
- Describe how the business will obtain funds; and
- Determine the strategy for how the business will pay debts.
You will generally have 120 days to come up with a good-faith plan and file it with the court.
4. Prepare your employees
The goal of a Chapter 11 bankruptcy is to reorganize and continue the business. Even so, restructuring often requires businesses to lay off employees so they can repay debts. In these cases, it is often beneficial to:
- Be open with employees about job situations; and
- Follow federal and New Mexico employment laws when conducting layoffs.
For example, failing to pay workers can result in legal claims and financial penalties for many businesses.
5. Devise a strategy to protect your business
Proactive planning is critical in the business world. So, while you must file and follow the terms of your reorganization plan, you should also create your own plan to continue business affairs, meet consumer needs and fulfill contracts.
There are many misconceptions about debt relief through Chapter 11 bankruptcy, but you must not let those or the process prevent you from acting in the best interests of your business’s survival.