Can all businesses file Chapter 11 bankruptcy?

Many business owners believe that only big businesses can file Chapter 11 bankruptcy. This belief likely stems from the fact that when big businesses file bankruptcy, it usually becomes national news. It is not common to hear about a smaller business’s bankruptcy simply because it does not make it into popular news stories.

While it is a common myth that only larger businesses can seek debt relief through Chapter 11 bankruptcy, the question remains: which businesses can file reorganization bankruptcy?

So, who can file Chapter 11?

Generally, any type of business can file Chapter 11 bankruptcy. This includes:

  • Corporations
  • Partnerships
  • Sole proprietorships
  • Joint ventures
  • Limited liability companies
  • Small business owners

Additionally, as we have discussed in previous blog posts, recent changes to federal law created a modified Chapter 11 specifically for small businesses. This new law made it easier for small businesses to seek debt relief while remaining open and expanded the opportunity for many types of businesses to file Chapter 11.

However, businesses that file must make a “feasible” plan

While any business struggling with debt can file Chapter 11 bankruptcy, you must create a realistic reorganization plan for it to be effective and successful. The bankruptcy court must approve the plan you propose. If it is not feasible, the case might be transferred into a Chapter 7 filing.

The plan must include:

  • Plans to repay debts in the best interest of creditors
  • Strategies for how the business will operate moving forward
  • Realistic plans to reduce expenses in the future

Chapter 11 can be complex. Therefore, even though any New Mexico business can seek debt relief through Chapter 11, it is critical that you ensure this is the right option for you.