Can My Business Save Itself By Converting to Chapter 11?
Filing for business bankruptcy is a complex process, and sometimes businesses move forward with a bankruptcy case without legal assistance, or with legal advice that is not particular to their specific business’s needs. As a result of the complexity of a business bankruptcy filing, and often as a result of the lack of an experienced lawyer, a business might believe that it needs to file for liquidation bankruptcy under Chapter 7 without understanding all of its options. While the conversion of a business bankruptcy from Chapter 11 to Chapter 7 is discussed broadly, there is less discussion about the conversion from a Chapter 7 bankruptcy to a Chapter 11 bankruptcy (or to another type of reorganization bankruptcy).
If your business originally filed for Chapter 7 but you believe there is reason that your business can complete a reorganization bankruptcy and remain open and operational, can your business convert to Chapter 11? In general, the answer is yes, but it is important to understand the context and the requirements under the United States Bankruptcy Code.
Conversion As a Matter of Right
The Bankruptcy Code permits one conversion as a matter of right (meaning that the debtor has the right to convert once without having to show cause or meet other requirements). Under Section 706(a) of the Bankruptcy Code, a debtor is allowed to voluntarily convert from a Chapter 7 bankruptcy to a Chapter 11, Chapter 12, or Chapter 13 bankruptcy — all forms of reorganization bankruptcy — as a matter of right as long as the debtor did not previously convert the case from one of those reorganization bankruptcy chapters to a Chapter 7 bankruptcy.
Accordingly, under this clause, if your business initially filed for a liquidation bankruptcy but you want to save the business and convert to a reorganization bankruptcy, your business is permitted to do so once as a matter of right.
Which Type of Reorganization Bankruptcy Should My Business Convert To?
Unlike a business liquidation bankruptcy, a reorganization bankruptcy allows a business to restructure its debts, to catch up on debt owed to creditors, and to remain open and operational. As such, a reorganization bankruptcy can allow the business owners to “save” the business, whereas a liquidation bankruptcy requires the business to close permanently.
While most businesses seeking reorganization bankruptcy will file for Chapter 11, your business could also be eligible for a Subchapter V filing, which was created with smaller businesses in mind. In limited circumstances, some businesses may be eligible for a Chapter 12 filing (for family farmers or fishermen) or a Chapter 13 bankruptcy (for individuals, but can apply to sole proprietorship business structures).
Contact Our West Palm Beach Bankruptcy Attorneys for Assistance with Your Business’s Reorganization Bankruptcy Today
Did your business initially file for a liquidation bankruptcy but realize a reorganization bankruptcy would make more sense, either to save the business or for another financial reason? If so, our firm has years of experience handling business reorganization bankruptcy cases, and we can speak with you today about the steps you will need to take in order to convert to a Chapter 11 bankruptcy or, potentially, to a Subchapter V bankruptcy or another type of reorganization bankruptcy that is available to your business in Florida. An experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC can speak with you today to answer any questions you have and to begin working with you on your business reorganization bankruptcy. Contact our firm for more information.
Source:
law.cornell.edu/uscode/text/11/706
