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Can Chapter 11 offer debt relief to a small business?

by | Mar 1, 2018 | Debt Relief

After we wrote recently here on our Quincy legal issues blog about two major grocery chains struggling with debt and reportedly preparing for bankruptcy, we should pause to address a question some readers are likely to have. While it’s true that bankruptcy can allow big businesses to reorganize in an effort to return to profitability, does Chapter 11 offer debt relief for a small business?

The answer is yes: in fact, an overwhelming majority of Chapter 11 filings are made on behalf of small businesses (that is, businesses with under 500 employees). Small businesses receive the same protection from creditors under Chapter 11. They will have roughly six months to develop a business reorganization plan and try to work out better terms for repaying their debts. This is exactly what many small business owners need to overcome their financial challenges and return to profitability.

However, there are some important factors to understand in a small business Chapter 11 filing. The court will play a more hands-on role in the process, reviewing the plans in detail. And while many small businesses file for Chapter 11, they don’t all obtain court approval of their reorganization plans. Those that do not may end up converting to Chapter 7, or liquidation bankruptcy.

Clearly, the decision to file for Chapter 11 bankruptcy is only to be undertaken by a small business with a realistic understanding of how it will become profitable and avoid falling back into debt. This discussion is intended to be general in nature only; a legal professional can provide valuable input into a specific small business reorganization plan that will succeed in bankruptcy court, and ultimately help the business succeed in the marketplace.

Source: Findlaw.com, “Chapter 11 Bankruptcy,” accessed on Feb. 23, 2018

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