Five Things to Know About Chapter 11 Bankruptcy

Posted by Bruce White | Mar 22, 2017 | 0 Comments

Chapter 11 bankruptcy is a process that allows distressed companies to reorganize their debts and emerge from the process as a viable going concern. This is a chaotic time for a company, and those who are considering filing for Chapter 11 should be sure that they know exactly what they are getting into before making the decision to proceed; the fewer surprises along the way, the better off you will likely be able to handle it. On this blog, we take a look at five important concepts you should know before filing for Chapter 11.

Liquidation vs. Reorganization

Chapter 11 is a “reorganization” plan, not a “liquidation” plan. A liquidation plan involves selling off the assets in a company to satisfy shareholders and creditors, and usually leads to the business shutting down. However, a reorganization plan is a declaration to creditors and shareholders that the company is reorganizing in a way that will be beneficial to both. Likewise, both must agree to this in order for the company to proceed with Chapter 11.

Liquidation Value

A company's liquidation value is how much money the sale of all of its assets within a short period of time would bring in. Your liquidation value will play a key role in whether or not your creditors and stakeholders will allow you to file for Chapter 11 or force a liquidation sale to recoup their losses.

Reorganization Value

A reorganization value is the amount of money creditors and stakeholders can expect to receive as a result of the reorganization efforts of filing Chapter 11. According to ASC 852, Reorganizations, this is defined as a value that “generally approximates the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the restructuring.” Therefore, this number may be substantially lower than the actual value of your business, but could demonstrate the value in letting you restructure as opposed to liquidating your assets.

Cash-Flow Test

So you've come up with a reorganization plan, but how viable is it? That's where the cash-flow test comes in. This test projects future payments to creditors and other cash flow requirements and weighs them against potential future income to determine if a reorganization plan will allow the business to succeed after Chapter 11 is filed.

Fresh-Start Accounting

Fresh-Start Accounting may be required when you emerge from the bankruptcy process. In short, fresh start accounting takes all of the assets, debts, and equity obtained from the company that entered Chapter 11, and allows it to exit as though it were an entirely new entity with the agreement that it adheres to the reorganization plan it has adopted.

A knowledgeable Richmond bankruptcy blog can assist you with the reorganization process of Chapter 11, and guide you through every step of the process. Bankruptcy law is complex, and often overwhelming for business owners who may not know where to turn or how to proceed. Attorney Bruce W. White personally handles your case every step of the way, and can provide you with the trustworthy guidance you need to set you on the path towards financial freedom.

Is your business struggling with debt? Call Bruce W. White, P.C. today at (804) 655-0502 and schedule your free initial consultation!

About the Author

Bruce White

Aggressive Bankruptcy Attorney in Richmond Bruce W. White has been helping clients with solutions to their financial problems for over 30 years. He is experienced, skilled, and knowledgeable, and can handle your case from start to finish with the dignity and respect it deserves.


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