Can Chapter 11 Bankruptcy Involve the Liquidation of Some Business Assets?

If your business is considering a Chapter 11 bankruptcy filing, you may already be aware that this is a type of reorganization bankruptcy that does not involve the liquidation of business assets and does not require the closure of a business. Many business owners are eager to file for Chapter 11 bankruptcy over a liquidation bankruptcy under Chapter 7 because a reorganization bankruptcy can allow the business to restructure debt and catch up on payments with creditors, all while continuing to run the business and avoiding the need to liquidate business assets. Yet in some situations, it might benefit a business to liquidate some assets during their bankruptcy case.

Is your business wondering about liquidating some assets during a Chapter 11 case? This is a complex issue, and it is critical to discuss the details with a bankruptcy lawyer before you attempt to liquidate any business assets. Depending on the circumstances, liquidating assets could result in business debts becoming non-dischargeable. Our West Palm Beach business bankruptcy lawyers can explain more below, and we can discuss the details of your business’s Chapter 11 plans with you today.

Requirements for Debt Discharge Under Chapter 11

A Chapter 11 bankruptcy plan works like this for a business: the business proposes a repayment plan over a period of time in which secured and priority creditors are repaid in full, and depending on the business’s financial circumstances, remaining unsecured non-priority debts may be eligible for discharge. The US Bankruptcy Code allows for certain unsecured non-priority debts incurred prior to the date of confirmation of the repayment plan to be discharged. However, a business entity cannot receive a Chapter 11 discharge if the following are true:

• Plan involves the liquidation of all, or substantially all, of the debtor’s assets; and
• Debtor does not engage in business after the plan begins.

In other words, if the business debtor enters into a Chapter 11 bankruptcy but plans to liquidate all or mostly all of its assets with an eye toward closing the business, a discharge is not possible.

Can Your Business Liquidate Certain Assets and Remain a Viable Business During a Chapter 11 Bankruptcy?

If your business plans to remain open during the Chapter 11 bankruptcy and conducting business, and if it plans to remain in business once the Chapter 11 case is completed, your business may be able to liquidate certain assets as part of its plan while still remaining eligible for the discharge of certain business debts.

It is essential to discuss specifics with a business bankruptcy lawyer who can assist your company and can ensure you do not make any errors that could put your business at risk.

Contact Our West Palm Beach Bankruptcy Attorneys Today 

Most businesses that file for Chapter 11 bankruptcy want to be able to reorganize debts, repay creditors, and keep their business running. Yet in some cases, it may be beneficial for a business to consider liquidating some business assets. Before you take any steps, it is important to seek legal advice about the potential implications. Indeed, when a business is considering a Chapter 11 bankruptcy filing, it is extremely important to work with an experienced West Palm Beach bankruptcy lawyer at Kelley, Fulton, Kaplan & Eller on the case from start to finish. Chapter 11 cases are more complex than other types of reorganization bankruptcy designed for individuals, and even a minor error can put your bankruptcy discharge and debt restructuring at risk. Contact our firm today for assistance with your business’s Chapter 11 bankruptcy case.

Source:

law.cornell.edu/uscode/text/11