When small businesses go into bankruptcy, the assumption is that the company is going belly up. It's gone to the Small Business Association in the sky, never to be heard from again. But that's not the way the story has to end.
For businesses that have hit a financial snag but want to keep going, there is Chapter 11. This type of bankruptcy gives you the option to claw your way out of debt.
It's not an easy process, but if you want your business to soldier on, Chapter 11 may give you that opportunity. You just have to decide if it's right for you.
While some forms of bankruptcy are designed to help cancel debts and move on, Chapter 11 helps businesses reorganize and get out from under their debts. Like any bankruptcy filing, the process kicks off with a request for bankruptcy protection, in this case under Chapter 11.
Once the petition is filed, it automatically puts any collection actions on hold. That's partly why business owners choose to go into Chapter 11 rather than try to sort it out themselves: It gives your business a reprieve from debt collectors.
The benefit of Chapter 11 over other forms of bankruptcy is that it allows the business to continue running during bankruptcy. While that's going on, you're also working to figure out a repayment plan that will satisfy the debtors.
The end goal is to emerge as a profitable business once the debts are paid. That's achieved by negotiating contractual obligations to lower costs and pay down debt.
Big companies often choose Chapter 11 so they don't have to go out of business in order to get out of debt. But for small companies, it can still be a good idea.
Still, you have to carefully consider how much you're willing to tighten your belt. If your debt is deep enough that you qualify for bankruptcy, it could be a long road to recovery.
You'll have to make cuts to your spending which includes payroll and any lease agreements. If your staff or landlord won't agree, you may need to reconsider.