No Austin business owner enjoys contemplating bankruptcy, but when their company is facing insurmountable challenges, filing for bankruptcy may be the only life preserver the business has available to get back to financial safety.
In Chapter 11 bankruptcy, a business reorganizes and creates a plan to eventually pay off its debt. When filing, one of the major advantages allowed to the business is the “automatic stay,” which is initiated at the beginning of the bankruptcy process.
The automatic stay does precisely what its name sounds like: It immediately and temporarily stops all debt collection against the business, including repossessions of property, foreclosures and litigation, that existed prior to the filing date. This stay is initiated automatically, and the business owner doesn’t need to tell their creditors (although notifying the debt collectors may help the phone calls to stop). This grace period gives the business owner some breathing time to figure out the plan for their business moving forward and to negotiate to try and resolve the financial difficulties.
Beware the exceptions
In some specific instances, a creditor can request “relief,” i.e., getting a court order to make them exempt from the automatic stay and allow them to continue pursuing the business’ debt. However, oftentimes it’s only secured creditors, like banks, that are granted this relief, and it’s only allowed if the assets being pursued are deemed by the court as unnecessary for the business’ reorganization and there is no equity in the assets.
If your business is facing the weighty prospect of filing for Chapter 11 bankruptcy, it’s important you get experienced legal counsel to help you understand and navigate all of your options so that you can take care of your business’ financial future.