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If a business would be profitable if it weren't for a heavy debt load; a Chapter 11 Bankruptcy could be the best option. A Massachusetts Chapter 11 Business Bankruptcy is a reorganization proceeding in which the business continues to operate while attempting to restructure its debts.
In February 2020, a new provision of the bankruptcy code went into effect, The Small Business Reorganization Act (“SBRA”). The SBRA is aimed at helping small business debtors with reorganization. A small business that files a Chapter 11 Bankruptcy continues to operate while attempting to restructure its debts. A Chapter 11 is usually beneficial to both the business and to the creditors, because Creditors will usually receive more than they would if the business were closed and liquidated.
When a Business files a Chapter 11 Bankruptcy, there is an automatic stay, meaning that the creditors cannot take any action against the business. Unlike a usual Chapter 11, a Trustee is appointed by the Bankruptcy Court that will act as a fiduciary for creditors, usually in lieu of the appointment of a creditors’ committee. The small business will stay open continue to operate, while it prepares a plan of reorganization ("chapter 11 plan") that must be approved by the Bankruptcy Court. If the Chapter 11 plan is approved, it binds both the debtor and the creditors to its terms of repayment. Under the chapter 11 plan, the debtor-in-possession can reduce debts by repaying a portion of its obligations and discharging others. It can also terminate burdensome contracts and leases, recover or sell business assets and rescale operations to get back to profitability.
A debtor in possession, or "DIP", is an individual or corporation that has filed for Chapter 11 bankruptcy protection and remains in control of the business and its assets, and has the power to continue to operate the business. A debtor who files a Chapter 11 bankruptcy case becomes the debtor in possession.
A debtor in possession can be terminated and the court if it is improperly managing the assets, or not following Court orders. If terminated, the Court will appoint a trustee to oversee the business and its assets.
Filing a Chapter 7 or 11 for a corporation or LLC does NOT eliminate the personal obligations of the corporation’s officers or principals.
Therefore, if a corporate officer or partner has signed a personal guarantee for a corporate debt, or is otherwise obligated for a corporate debt (such as trust fund portion of payroll taxes or the responsible officer for sales taxes or other debts), then he or she will remain obligated after a bankruptcy.
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