A California small business might find itself debt-laden. Subchapter 5 of Chapter 11 bankruptcy could provide a solution for such business owners.
Subchapter 5 and small businesses
Chapter 11 bankruptcy provides a way for businesses to remain in business during bankruptcy proceedings. Chapter 11 allows companies to reorganize their debts and initiate a payment plan to cover some of their obligations. Larger companies, including major corporations, may rely on Chapter 11 bankruptcy to get back into a better fiscal position.
Chapter 11 applies to various businesses, including small ones. However, small business owners may lack the resources or abilities to deal with a complex bankruptcy filing. So, the bankruptcy laws established subchapter 5, which presents a streamlined option for small business owners struggling with massive debt.
Subchapter 5 intends to deliver relief to small businesses that cannot pay their obligations while earning a small profit. So, small businesses need not suffer monthly losses to seek Chapter 11 protections.
Entering into Chapter 11
Under Chapter 11 bankruptcy statutes, a small business could go to court to require creditors to engage in a repayment plan. This is not to suggest the creditors have no say nor that the court will accept any plan the debtor brings forward. The court has the final say on approving or declining a proposed payment plan, and creditors could have a say during the proceedings.
Once the court approves a payment plan, the debtor must make payments as scheduled. If not, the court could dismiss the bankruptcy. Be aware that bankruptcy involves a collection stay, and that stay would end if the court dismisses the bankruptcy.