Company Bankruptcy Procedures
If your firm is facing company bankruptcy, you need to understand the procedures for filing. “How does company bankruptcy work?” is the first question we get when we have our initial meeting with a leader of a troubled business.
In this short web page, we will give you a broad outline of company bankruptcy procedures.
A short aside: We don’t recommend that you take company bankruptcy unless you have explored all company bankruptcy alternatives. The best book on this subject is The Insider Secrets to Saving Your Business: The Step-by-Step Turnaround Guide. This manual will save your thousands of dollars in legal fees and will improve your chances of preventing a company bankruptcy filing.
Here are the basic company bankruptcy procedures:
1. Find a competent bankruptcy attorney. Our advice is to interview several before engaging one. Pick the one that you trust and gives you alternatives to bankruptcy. Beware of the lawyer that only gives you one choice … company bankruptcy. Probably he or she is more interested in making a sizable fee than helping you and your company.
2. Decide on Chapter 7 or Chapter 11 company bankruptcy. You should decide with your lawyer. Chapter 7 is liquidation, while Chapter 11 is reorganization, which allows your business to continue with a restructured balance sheet. How to make the choice? If your underlying business model is unprofitable, then take Chapter 7. Otherwise, take Chapter 11.
3. If you decide to take Chapter 7, then have your lawyer draw up the papers and file them with the court. The court will handle the liquidation from there. You walk away.
** The rest of this discussion refers to Chapter 11 **
4. If you decide to take Chapter 11 company bankruptcy, your lawyers will draw up the papers and file them with the court. The judge then issues the automatic stay that forbids your creditors from seizing assets.
5. You file more paperwork to the court in the first 15 days listing your financial condition, your assets and your creditors.
6. The US government trustee creates a creditors’ committee to act for all creditors. They will be the group that is your “adversary” in our adversarial judicial process.
7. You will testify in the 341 meeting about the financial condition of the firm and other relevant matters to the creditors. At this meeting, you will be under oath and you will answer questions from the US trustee, the creditors’ committee and their lawyers.
8. You can accept or reject contracts that you have previously committed to.
9. You propose a plan of reorganization plan, with the help of your lawyers. The creditors and equity holders vote on this plan. If the stakeholders accept it, then your company emerges with a new balance sheet. Usually, creditors will own the business.
10. If creditors do not accept your plan, then you can offer another plan and the creditors can offer competing plans. Eventually, one of the plans will win or the judge will cram down one plan if there is not any agreement.
As you can see, filing can be difficult. That is why we recommend that you explore company bankruptcy alternatives.