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Who qualifies for a Chapter 11 bankruptcy?

Because most of the Chapter 11 bankruptcies that make the news are larger and oftentimes nationally known organizations, some owners of smaller Louisville, Kentucky, businesses may think that a Chapter 11 bankruptcy is just not for them.

In reality, though, by filing for Chapter 11, lots of businesses can eliminate business debt and have the opportunity to restructure so that they have the chance of continuing to operate in the years to come. For a small business owner who wants to keep his or her enterprise afloat, Chapter 11 can prove to be a financial lifesaver.

The eligibility requirements for filing a Chapter 11 are relatively broad. While of course the business will have to prove that it meets the basic rules of filing for any bankruptcy, really the key question is whether it can convince the bankruptcy court that, with a temporary stay on debt collection and a little reorganization, the business will be able to turn a profit again.

On the other hand, a Chapter 11 will likely get dismissed or converted to a Chapter 7 business bankruptcy if it appears the business has no chance of surviving in the long run. Unlike Chapter 7 for individuals, a Chapter 7 for business is simply a court-supervised sell off of the business’s assets.

It is also worth noting that wealthier individuals may also file for Chapter 11 bankruptcy, although this is relatively rare. Most individuals, even high earners, prefer either Chapter 13 or Chapter 7.

Although a small Kentucky business in distress can and should consider filing for Chapter 11 bankruptcy, the actual process is complicated and is generally accomplished with the help of an experienced business bankruptcy attorney.

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