Home >> Bankruptcy >> Chapter 11 Bankruptcy Explained

If you have debt as a result of the pandemic that you’re struggling to pay off, you have options. And that doesn’t mean closing your business. Below, you’ll find Chapter 11 bankruptcy explained by our partners at HBS in an easy-to-understand format. Watch to learn more and find out how you can keep your business open for years to come, even after challenging times.

Transcript: Chapter 11 Bankruptcy Explained

Narrator:

Meet Joe. For the last 15 years, he’s owned a successful flower and gift shop, and then came the pandemic. He had to close his shop. He still had lots of bills to pay, rent, utilities, a bank loan, insurance, but no income. He’s worried that the business can’t survive. He’s thinking about his options.

Joe:

Maybe I can raise money, another bank loan, or I could invest my savings back into the company. Maybe I can borrow from friends and family, or I might need to file for bankruptcy. But what does bankruptcy really mean? Can it help me or just put me out of business?

What is bankruptcy?

Narrator:

Many people think that bankruptcy means shutting down your business. This is called Chapter 7 bankruptcy. But there’s another kind that helps you stay in business, Chapter 11. Chapter 11 is designed to protect the business until you can get back on your feet.

Basically, it means creating a court-approved plan for you to pay off your debts in a way that lets you keep the business running. The goal in Chapter 11 is for the company to get a fresh start. Chapter 11 used to be long and expensive and only worked for large firms. Luckily, there’s a new and simple version of Chapter 11 for small businesses with debts of less than $7.5 million thanks to the Small Business Reorganization Act or SBRA.

Joe:

My debts are way less than that. So bankruptcy can help me keep my business?

How can the Small Business Reorganization Act help my business?

Narrator:

That’s right. SBRA is simpler, faster and less expensive for small businesses. Under SBRA, you come up with a plan that allows you to renegotiate your debts, your lease, bank and credit card payments, supplier terms. You reduce the amount you pay so it works with the amount of sales you expect. You can go back to running your business the way you used to.

Joe:

I had no idea. Wow, that could really help. But the idea of bankruptcy makes me feel like a failure.

Narrator:

I know you’re feeling discouraged, but your business isn’t in trouble because you did something wrong. You didn’t fail. Business conditions changed. Now you’re ready to move forward with your business, but you need some help. That’s what Chapter 11 is designed to do, help you make a new start.

Bankruptcy is even part of the U.S. Constitution to provide a safety net for people and companies. It’s a tool that responsible people use to save a good business after a setback.

Joe:

But I worry what my clients might think about me if my business files for bankruptcy.

Narrator:

Bankruptcy is a lot more common than you may think. Big businesses have been using Chapter 11 for decades. General Motors, Marvel Entertainment, United Airlines, Six Flags, and the Chicago Cubs. The list goes on.

Joe:

Why those businesses are still successful.

Narrator:

Thousands of companies, including small and medium businesses like yours, have used Chapter 11 bankruptcy protection to regain their financial strength.

Joe:

Wow, that sounds like it could be a useful option. I want to learn more about it.