If your business is having financial problems, you may wonder what the best course of action is. For some businesses, bankruptcy is the solution. Many mistakenly believe that filing for bankruptcy means that the company will go out of business. This is not always the case; learn what a chapter 11 bankruptcy is and how it can you save your business.
A chapter 11 bankruptcy permits you to petition for a reorganization of your business. It lets you restructure your debt so that you can improve the financial position of your company.
1. Chapter 11 Bankruptcy Helps You Solve Cash Flow Issues
It is not uncommon for businesses to suffer from cash flow issues. When you put all the figures on paper, you should have enough money to cover your obligations. However, due to the timing of when you receive payments and when your debts are due, you don't have ample cash to cover your obligations on-time. Paying your vendors late can put your business at risk, result in expensive fees and interest, and cause the issue to spiral so that you fall behind on your payments.
Filing for chapter 11 bankruptcy is one way to alleviate cash flow problems. A chapter 11 bankruptcy gives you the option to reduce your payments and alter their due dates, decreasing the amount that you have to pay each month. You can also extend the length of your debts so that you have more time to pay.
2. It Helps Your Company Overcome Market Fluctuations
If your business is relatively new, you may not have the cash reserves to weather short-term changes in the market for your product. Even a small decrease in demand is significant if you need every dollar to cover your operating expenses. Filing for chapter 11 bankruptcy helps you withstand temporary changes in demand without having to stop the operation of your company.
3. You Can Avoid Liquidating Your Company's Assets
There is another type of bankruptcy for businesses called chapter 7 bankruptcy. Chapter 7 bankruptcy is better suited for businesses who want to stop their operations. With a chapter 7 bankruptcy, you have to liquidate all of your business's assets to help repay your debts.
A chapter 11 bankruptcy makes it possible for your company to hold onto its assets. This is extremely important if you hold items that you can expect to ultimately appreciate in value, such as land or real estate. Instead of having to sell these items to keep your company afloat, you can hold onto these assets and realize future increases in their value. For more information, contact a local bankruptcy lawyer like Roberson Law LLC.
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