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Two days ago in my Indiana bankruptcy blog, I wrote about Freight Masters Systems, an Indianapolis trucking and logistics firm that filed bankruptcy.  Yesterday, I responded to a reader’s question about whether Chapter 7 or Chapter 13 was more advantageous for a small business seeking Indiana bankruptcy help. 

Since my blog is part of an effort on my part to provide useful bankruptcy information in Indiana. I think it might be helpful for my blog readers and Indiana bankruptcy clients to understand why Freight Masters Systems chose Chapter 11, and what the special requirements and advantages are of that form of bankruptcy.

Linda Ekstrom Stanley, a bankruptcy trustee in San Francisco, wrote:  “Chapter 11 is a valuable tool.  It gives small and large businesses alike a breathing space from their creditors, a chance to reorganize, a ‘fresh start’.  It provides a unique opportunity to restructure the results of past mistakes for future success.”

As one of the Columbus bankruptcy lawyers that work in my offices there often tells clients, “The most important thing to understand about Chapter 11 is that it is appropriate only when there are real possibilities for the business to survive.”  Chapter 11 is meant for a business that is having financial difficulties, but these are expected to be temporary.  If debt repayments can be reduced or at least postponed, there is real hope that the business can once again become successful.

In fact, once the Chapter 11 bankruptcy is filed with the court, the debtor has 4 months to file a plan of reorganization with the bankruptcy court, and the creditors have to agree to that plan.

I’m a debt consolidation lawyer as well as a small business bankruptcy attorney in Indianapolis, so, when I’m sitting down with owners of a small business to evaluate options and plan a strategy for bankruptcy, there are some hard questions I need to ask:

1.   What really makes more sense – liquidating the business altogether and starting over with a new business – or reorganizing this one? Will you have the capital to start a new business?

2.   Do you, the owners, truly have the ability to make this particular kind business profitable again, despite whatever obstacles there are in your industry?

3.   What kind of debt do you have?  Is it mostly secured debt (those assets will be returned to the creditors) or unsecured?

4.    Do you, the owners, understand that a Chapter 11 reorganization plan will require quite a bit of time and effort to keep up with the monthly reporting that will need to be done all through the process?

As Indianapolis bankruptcy lawyers, my colleagues and I often refer to Linda Ekstrom Stanley’s description of how strict a discipline the Chapter 11 process involves.  “Too often,” she says, “the debtor’s principals are stressed-out entrepreneurs accustomed to operating in an unstructured environment.  Chapter 11 is like a bucket of cold water.”

 

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