7 Key Considerations for Operating Sustainably After a Chapter 11 Bankruptcy

Going through a Chapter 11 bankruptcy provides the opportunity to reorganize a company’s debts so that it can remain in business. This distinguishes Chapter 11 bankruptcies from other types of filings, and it makes working with a Miami Chapter 11 bankruptcy lawyer an attractive option for companies that have a clear vision for the future. Companies can face financial strain for a variety of reasons, and, in many cases, their current financial strain is not indicative of their capacity for long-term success.

With that said, when going through a Chapter 11 bankruptcy, it is important to have a plan for operating sustainably after the bankruptcy process. Generally speaking, reorganizing a company’s debts will not be enough on its own. If a company does not have a plan for operating sustainably post-bankruptcy, it can find itself facing the same financial struggles it faced pre-bankruptcy, and this can wipe away the benefits of the company’s Chapter 11 filing.

Managing Financial and Legal Risk After a Chapter 11 Bankruptcy

So, what can (and should) companies do to set themselves up for long-term success once they have reorganized their debts? Here are seven key considerations for operating sustainably after a Chapter 11 bankruptcy:

1. Focus on Developing a Manageable Payment Plan During the Bankruptcy Process

First and foremost, it is important to focus on developing a manageable payment plan during the bankruptcy process. This will be foundational to the company’s post-bankruptcy financial success.

While companies pursuing Chapter 11 bankruptcies must be willing (and able) to develop a reasonable payment plan that is acceptable to their creditors and to the U.S. Bankruptcy Court, they must also be careful to ensure that their bankruptcy-related payments will not prevent them from meeting their other financial obligations or making necessary investments in the future. If a Chapter 11 payment plan does not facilitate a company’s ability to remain viable as a going concern, then reorganizing under Chapter 11 may not be the company’s best option.

2. Minimize the Costs of the Chapter 11 Bankruptcy Process

When reorganizing their debts under Chapter 11, companies should also seek to minimize the costs of the bankruptcy process. For many companies, this means pursuing a small business bankruptcy under Subchapter V. For eligible small businesses, filing under Subchapter V provides a streamlined path to reorganization. This reduces the costs involved—which means that the business retains more of its funds to use for other business-related purposes.

3. Seek to Strategically Discharge Debts

While Chapter 11 focuses primarily on reorganization, companies can also discharge debts through the Chapter 11 bankruptcy process. In many cases, strategically discharging debts can be an effective means of increasing positive cash flow while freeing up funds for necessary expenditures. Eliminating or restructuring executory contracts during the bankruptcy process can offer similar benefits. An experienced Miami Chapter 11 bankruptcy lawyer will be able to help you weigh all of your options and develop a comprehensive plan for restoring your company’s financial stability.

4. Make Sure Your Company is Not at Risk for Facing Post-Bankruptcy Challenges

The U.S. Bankruptcy Code establishes various grounds for creditors to challenge the reduction or discharge of their claims not only during the bankruptcy process, but also after the bankruptcy process is over. With this in mind, when pursuing a Chapter 11 bankruptcy, it is critical to avoid making mistakes that could potentially trigger a creditor’s right to seek immediate payment or a revocation of discharge. Not only can this eliminate the benefits achieved through a Chapter 11 filing, but it can also lead to additional litigation costs that could (and should) have been avoided.

5. Take on New Debts Responsibly

Although it can appear counterintuitive from the outside looking in, taking on additional debt will often be a necessary step toward establishing sustainable business operations after a Chapter 11 bankruptcy. But, while taking on additional debt may be necessary, it must be done responsibly.

While potential creditors will take the steps they believe are necessary to protect themselves, it ultimately falls on companies (and their owners and executives) to ensure that they are not setting themselves up for more financial trouble. When negotiating loans and credit lines post-bankruptcy, companies must work closely with their counsel to ensure that they are not accepting unreasonable terms and conditions or taking on unreasonable risk as well.

6. Prioritize the Company’s Bankruptcy Payments

After going through a Chapter 11 bankruptcy, it is essential to prioritize the company’s bankruptcy payments. Missing payments under a Chapter 11 reorganization plan can result in the Chapter 11 case being dismissed or involuntarily converted to a Chapter 7 bankruptcy proceeding. Creditors may have grounds to sue as well, and the company could quickly face foreclosure and other collection efforts. Of course, missing other payments can also have significant adverse consequences, so the overarching goal should be to avoid a situation in which the company cannot make all of its payments as they come due.

7. Be Proactive About Resolving Any Post-Bankruptcy Financial Concerns

Finally, to minimize the risk of facing issues with bankruptcy creditors after a Chapter 11 (or Subchapter V) bankruptcy, companies should be proactive about resolving any post-bankruptcy financial concerns. Chapter 11 reorganization plans can be amended in appropriate cases; and, generally speaking, addressing financial concerns proactively will afford the greatest opportunity to work out a resolution that avoids litigation or collection.

Creditors will be willing to consider restructuring or renegotiation in many cases, particularly when they know that this is the most cost-effective alternative they have available. But, once a creditor decides to pursue legal action, this can eliminate options that might have otherwise been on the table.

Schedule a Complimentary Consultation with a Miami Chapter 11 Bankruptcy Lawyer

If you are considering a business bankruptcy under Chapter 11 (or Subchapter V), we invite you to contact us for more information. To schedule a complimentary consultation with a Miami Chapter 11 bankruptcy lawyer at Edelboim Lieberman, please call 305-768-9909 or inquire online today.