October 28, 2020

Everything You Need to Know About Chapter 11 Bankruptcy

Chapter 11 bankruptcy, most commonly used by corporate entities, involves the reorganization of a debtor’s business dealings, assets, and debts. Chapter 11 is perhaps the most complex form of bankruptcy under U.S. bankruptcy laws, so it makes sense that you might have a few questions about how long it takes, how it affects employees, and what it means for a business moving forward.

Chapter 11 bankruptcy, most commonly used by corporate entities, involves the reorganization of a debtor’s business dealings, assets, and debts.

Chapter 11 is perhaps the most complex form of bankruptcy under U.S. bankruptcy laws, so it makes sense that you might have a few questions about how long it takes, how it affects employees, and what it means for a business moving forward. Here’s what you’ll need to know to understand how it all works.

What Happens to Employees When a Company Files Chapter 11 Bankruptcy?

Generally speaking, if your company is going through Chapter 11 bankruptcy, you intend to restructure and continue operations. This means you’ll probably retain some employees to help keep things running as you reduce operating costs and manage your debts.

Because your organization will be reorganizing its financial affairs, though, and employee wages represent such a large expense, there will likely be a significant number of employees who you lay off as a cost cutting measure. In the case of mass layoffs, the WARN act stipulates you must provide employees a 60-day advance notice if you have more than 100 total employees and you plan to lay off at least 50 of them.

Can a Company Survive Chapter 11?

Short answer? Yes. To be more specific, though, Chapter 11 bankruptcy allows your company to reorganize, provided that reorganization takes into account the interests of the company’s creditors. It offers a chance for your company to downsize, restructure debts, and prepare to carry on into the future.

The company that emerges on the tail end of a Chapter 11 bankruptcy won’t be exactly the same, however. Because you’ll likely have to lay off at least some of your workforce, sell assets, and reduce other expenses going forward, your company will be a leaner version of itself.

In some cases, bankruptcy even provides the opportunity to relaunch your brand and make changes to management, maximizing the future success of your organization.

How Long Does Chapter 11 Take?

Chapter 11 bankruptcy is an expensive and lengthy process. The exact amount of time your bankruptcy and repayment process will take can vary depending on the size of your organization, how much restructuring you’ll need to do, and how much you’ll need to repay to creditors. 

While there’s  technically no time limit, most businesses resolve their Chapter 11 bankruptcies and repayments within a period of a few months to a couple of years.

How Often Can You File Chapter 11?

You’re able to file for bankruptcy as often as you need, and in many cases, there are no time limits on doing so. You could potentially file a new bankruptcy once a prior one has been resolved.

Some other forms of bankruptcy, like Chapter 7 and Chapter 13, place limits on your ability to receive a discharge of debts in a new bankruptcy filing. In the case of repeated Chapter 11 filings, though, you are generally eligible for debt discharge as long as the bankruptcy includes a plan for the reorganization of and continuance of your business.

If you’re looking at options for filing for Chapter 11 bankruptcy, make sure you have an attorney who can guide you through the process. Contact us at Schwartz Law today to find out more.