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Restructure Helpful When Debt Exceeds $5 million

On Behalf of | May 3, 2023 | Bankruptcy

You no doubt worked long and hard to build your Kentucky business from the ground up. Whether you sell a specific product or provide a service, if you’ve been in business for several years or more, you’ve likely encountered financial challenges at some point. Most business owners do. When debt begins to increase, and efforts to overcome financial crisis are not working, it may be time to explore additional options, such as the debt restructuring that the Chapter 11 bankruptcy program offers.

Any number of issues may have sparked your company’s financial woes, including bootstrapping most of your expenses (paying out of pocket as opposed to seeking external funding as a protective measure), unnecessary expenditures, poor accounting practices and lack of capital. Facing millions in debt can be quite distressing; however, if you take advantage of financial tools that may be available to your business, you might find that you not only are able to resolve your current debt but also lay the groundwork for solvency and greater profitability down the line.

Lenders don’t like non-performing assets any more than you do

If you have more than $5 million in debt, you might be having a difficult time keeping up with loan payments. Perhaps, you have fallen so far behind that you haven’t even been able to make the interest-only payments associated with your business loan. When this happens for several consecutive months, your lender might have to categorize your loan as a “non-performing asset.” This, in turn, can have negative collateral consequences on the lender’s ability to generate revenue.

The better able to keep up with loan payments your company is, the more beneficial it is to your lenders. If you default on your loan, your lender has several options to recoup the debt you owe. However, you may be able to avoid that if your lender agrees to a Chapter 11 bankruptcy plan, which enables you to restructure your payment plan so that your company continues to function while you continue making payments against your debt.

Steps to take to apply for the Chapter 11 bankruptcy program

As a corporation or partnership with more than $5 million in debt, you might be able to regain financial stability by filing Chapter 11 bankruptcy. The following list includes the basic steps involved in the process:

  • File a voluntary petition in a bankruptcy court in the same jurisdiction as your business.
  • File a list of assets and liabilities.
  • Compile a list of current expenditures.
  • Demonstrate proof of income.
  • File a plan for debt reorganization.

You may also have to sign additional documents and provide additional information to activate a formal request for Chapter 11 bankruptcy in Kentucky.

If you are filing Chapter 11 as a corporation

If you registered your Kentucky business as a corporation, it exists separately from its owners, or stockholders. This means that the personal assets of the stockholders are not at risk when the corporation seeks debt relief through the Chapter 11 program, which is one of the benefits of registering as a corporation rather than a sole proprietorship or other business structure.

If your company is a sole proprietorship, your bankruptcy petition includes your personal and business assets. Since there are multiple other types of business structure, it’s best to discuss your circumstances with someone who is well-versed in Chapter 11 bankruptcy laws to determine if it is the best fit to help resolve your current debt and enable your business to flourish in the future.