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Business bankruptcy can be more complex than personal bankruptcy

Entrepreneurs in Kentucky are likely all too familiar with the risks involved in starting a business. Depending upon the industry, failure rates can be anywhere from half of all start-ups to 80 percent or more. In many cases, there may be nothing the business owners can do about it; factors beyond their control may be involved, such as a crash in demand, or closing of a preferred supplier causing a mountain of business debt. However, in certain cases, owners may see a way out of financial distress, if only the business were given the time to recover and strengthen some of its weak areas.

In cases like these, a Chapter 11 bankruptcy may be beneficial. Unlike a liquidation, where a business sells off its assets in order to pay some portion of what is owed to creditors, in a Chapter 11 “reorganization” bankruptcy the business will attempt to come up with a way to pay its debts over a certain period of time. To do this, the business owner must file a couple documents with the bankruptcy court.

First, the business needs to complete a disclosure statement to report to the court the state of the business, how it came to require the remedy of bankruptcy and how it plans to continue its operations throughout the process. Then, the owner must come up with a reorganization plan in which the business will repay its debts over a period of time identified in the plan. Generally speaking, creditors will then vote in groups as to whether to accept the reorganization plan, with said groups being created based upon the creditors’ characteristics, such as secured creditors and unsecured creditors. The numerical majority of votes in each group, and at least two-thirds of the total monetary claims in that class, must vote for the reorganization plan for it to be accepted.

While it may seem strange that creditors might accept a promise to pay from a business that has not been able to pay in the past, in many cases the creditors realize that they will likely receive much less if the debtor business is forced to liquidate. There are, of course, many other factors to be considered in deciding on a business bankruptcy, and understanding these factors can be crucial in making proper decisions.

Post Type: Persuasive

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