Chapter 11 Bankruptcy Lawyers - Nick Davis Law

Yes, Chapter 11 can provide an opportunity to restructure your business’s legal form or ownership structure. For example, if your business is a partnership or sole proprietorship, you may consider converting it into a corporation or limited liability company (LLC) to protect personal assets and streamline operations. However, these changes must be disclosed to the court, and creditors may need to approve certain modifications if they affect repayment terms. Careful planning with your attorney can help you assess whether restructuring the business entity is advantageous during your reorganization.

Securing new contracts during Chapter 11 can be challenging but not impossible. Potential clients or partners may be hesitant to engage with a business in bankruptcy, fearing that it may not fulfill its obligations. To mitigate these concerns, transparency is key. Clearly communicate how your business is stabilizing through the Chapter 11 process, and highlight your commitment to meeting all contractual obligations moving forward. Having a well-organized reorganization plan in place can reassure partners that the business is on track to financial recovery and continued success.

Your intellectual property (IP)—such as patents, trademarks, and copyrights—remains valuable during Chapter 11, and protecting it is essential for your business’s long-term viability. The court will consider your IP assets as part of the bankruptcy estate, but you retain the right to continue using them. If your IP generates revenue (e.g., through licensing), that income can help fund your reorganization. Additionally, any ongoing contracts related to IP, such as licensing agreements, may need to be renegotiated or assumed as part of the reorganization. An IP attorney, in conjunction with your bankruptcy attorney, can help safeguard these assets.

Opening new credit lines or business accounts during Chapter 11 is possible but requires court approval. New financial arrangements, such as opening bank accounts or securing loans, must be transparent and in line with the reorganization plan. You may need to demonstrate how new credit will support the business’s recovery and ensure repayment. Often, businesses in Chapter 11 rely on debtor-in-possession (DIP) financing for this purpose, but other forms of credit may be considered as long as they are essential for the company’s continued operation.

Not all decisions require court approval, but significant actions—such as selling assets, taking on new debt, modifying contracts, or making large expenditures—typically do. These decisions are reviewed to ensure they align with the goal of reorganization and won’t jeopardize the creditors’ interests. Day-to-day operations, such as managing inventory or fulfilling customer orders, generally don’t need court approval, allowing the business to function smoothly while restructuring. Working closely with your attorney ensures you know when to seek approval and how to present your case to the court effectively.

Yes, Chapter 11 can be a useful tool for resolving internal disputes, especially if disagreements over the business’s direction have contributed to financial strain. The reorganization plan may include restructuring ownership, adjusting profit distributions, or even buying out problematic partners. In some cases, a court-approved reorganization can override certain disputes, forcing reluctant parties to comply with the terms of the plan. If conflict within your business is affecting operations, Chapter 11 can provide a structured framework to negotiate a resolution while stabilizing the company’s financial future.

During Chapter 11, your business must continue to file and pay current taxes, such as payroll and sales taxes. Failing to do so can jeopardize your case and lead to penalties. Pre-petition tax debts (those incurred before filing) can be included in the reorganization plan, allowing you to pay them off over time. However, certain taxes, such as trust fund taxes (e.g., employee withholdings), are typically non-dischargeable, meaning they must be paid in full. An attorney experienced in tax and bankruptcy law can help you navigate tax issues to ensure compliance and avoid complications.

You can still hire new employees during Chapter 11 bankruptcy, but you’ll need to ensure that their salaries and benefits are manageable under the reorganization plan. It’s essential to demonstrate that adding staff is necessary to maintain operations or support the company’s recovery. Employee compensation must be disclosed in your monthly operating reports, which the court and creditors review. Hiring decisions should be carefully considered in the context of your financial goals to avoid creating additional strain on the business’s resources.

Relocating your business is possible during Chapter 11, but significant moves, such as changing your office or operational location, will likely require court approval. The court will want to ensure that relocating supports the reorganization plan and won’t disrupt creditor repayment or business operations. Additionally, you may need to renegotiate or reject leases as part of the move, which can be folded into your reorganization plan. Planning and clear communication with stakeholders will help ensure that relocation is seen as a positive step toward financial recovery.

If your business is involved in partnerships or joint ventures, Chapter 11 may affect these relationships, particularly if the partnership agreements involve shared liabilities or profits. You may need to renegotiate terms with your partners to reflect the reorganization plan and ensure ongoing operations are viable. Some partners may be hesitant to continue working with a business in bankruptcy, while others may be open to revised terms that offer better financial stability moving forward. Your attorney can help guide you through these negotiations to ensure partnerships remain beneficial during and after the bankruptcy process.