Even though Chapter 11 allows for reorganization and continued operation, some businesses opt for Chapter 7 instead. Here’s why:
1. Business Has No Path to Profitability
- If the company is deeply in debt with no realistic way to recover, it doesn’t make sense to reorganize.
- Chapter 7 allows the business to shut down cleanly and liquidate assets to pay creditors.
💬 “Why keep fighting a losing battle?”
2. Can’t Afford Chapter 11 Costs
- Chapter 11 is complex and expensive — legal fees, accountant fees, and court costs add up fast.
- Small businesses often can’t afford the legal burden of developing and negotiating a reorganization plan.
3. Need a Faster Resolution
- Chapter 11 can take months or years.
- Chapter 7 is quicker — usually 4 to 6 months — and can provide a fast exit and debt discharge.
4. Owner Wants to Walk Away
- If the business is a sole proprietorship or closely held company, the owner might just want to cut losses and move on.
- Chapter 7 lets them close shop and get personal debt relief (if applicable).
5. No Funding to Operate During Bankruptcy
- Chapter 11 requires some cash to keep the business running during restructuring.
- If there’s no money left to operate, reorganization isn’t feasible — Chapter 7 is the fallback.
When Chapter 11 BANKRUPTCY Doesn’t Work:
If the business has no valuable brand, no future, or no realistic plan to become profitable — there’s nothing to reorganize.