Small business lenders like Kabbage, Yellowstone Capital, Fundomate, LiftFund, or Lending Express provide loans to small businesses, and they provide a valuable service to their customers and to our economy by making capital available to small businesses. But if your business is struggling, you may want to consider filing a chapter 11 business bankruptcy to reorganize your business and get a fresh start.

A chapter 11 plan of reorganization that has been confirmed or approved by the bankruptcy court is binding on creditors and is essentially a "new contract" with your creditors, reducing the amounts owed and/or reducing the payments owed to a level that your business can afford. 

These small business lenders such as Kabbage and Yellowstone Capital and others like them are entitled to be paid according to their contracts, if that is possible. Yes, even bankruptcy lawyers believe in the "sanctity of contract." But sometimes things happen that negatively impact business revenue such as recessions, expanding too soon or without adequate capital, increased competition, increased costs or loss of key personnel, or just poor management skills. If the business has completely failed and just needs to be liquidated, chapter 7 bankruptcy is probably best.

But if the business is still feasible and profitable, or can be made so through some changes to the business, a chapter 11 reorganization can be best. Under-performing business locations can be closed, commercial leases can be rejected, unnecessary equipment can be returned, and the remaining money owed those creditors can be negotiated and paid only part or all of what is owed over a long period of time at a level the business can afford, depending upon the circumstances of the case. 

Meanwhile the "automatic stay" or bankruptcy injunction goes into effect as soon as the case is filed with the bankruptcy court, so creditors cannot call you, sue you or take any other actions to collect their debts without permission of the bankruptcy court, with very limited exceptions.

Do you think it's good that chapter 11 is available, to give businesses a second chance? Or should businesses just be liquidated and put out of business when they can't pay their bills? Please leave your comments or questions below.

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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