Show how long available cash can support the business
Start with a short-term cash forecast showing opening cash, realistic collections, payroll, taxes, essential suppliers, payments on loans backed by property and closing cash. Separate overdue obligations from the cost of staying open next week. A business that loses money on every ordinary sale needs an operating change as well as creditor relief.
Keep forecasts, receivables aging, inventory, loan documents, leases and tax notices together. Identify liens (claims against property), blocked accounts, and cross-default clauses that let a breach of one obligation trigger another. List personal guarantees—owners’ or others’ promises to cover business debts—separately. A company debt and an owner’s guarantee are separate exposures; resolving one does not establish that the other is released.
Four decisions: Can operations become viable? Is there enough available cash to reach that point? Which creditors can interrupt operations? What exposure remains with owners or guarantors?
Match the distress to the discussion
| Situation | Possible route | Question that decides whether it works |
|---|---|---|
| Temporary cash shortfall | Forbearance, extension or negotiated workout | Will signed terms create enough time without an unaffordable balloon, new lien or guarantee? |
| Viable operations, debt structure cannot be serviced | Chapter 11 reorganization, including a Subchapter V small-business-route eligibility review | Can a feasible plan and operating budget be funded under the applicable process? |
| Operations cannot become viable | Orderly sale, wind-down, state proceeding or Chapter 7 review | Who controls the assets, what must be preserved and what duties apply before distribution? |
| Qualifying farm or fishing operation | Specialized Chapter 12 advice | Do the operation, ownership, income and debt requirements fit the actual business? |
Receiverships and assignments for the benefit of creditors are state-law processes with their own control, cost and creditor consequences. Do not treat a voluntary handover of assets as equivalent to a bankruptcy discharge.
Chapter 11 is a process, not permission to stop accounting
Chapter 11 often lets a debtor in possession continue operations while undertaking reorganization, subject to court oversight and duties. Plans, creditor rights and court authorization remain central. U.S. Courts: Chapter 11 basics
Subchapter V has a distinct definition, exclusions and election requirements. Eligibility thresholds and commencement-date rules can change. Ask counsel to check the current statute for the filing date rather than relying on an old dollar limit or a marketing label.
Prepare to explain insider debts, affiliated businesses, contingent guarantees and how debts are categorized. Eligibility does not by itself establish plan feasibility, discharge, lien treatment or release of an owner.
Before signing a workout or shutting the doors
- Identify who is authorized to bind the company and whether owners must consent.
- Have counsel review new collateral, terms authorizing a judgment against the business, and personal guarantees.
- Separate tax, payroll, employee, customer-deposit and secured-property obligations for specialist review.
- Preserve financial records and property; avoid selective insider transfers based on informal priority assumptions.
- Obtain written releases for the parties and obligations actually being resolved.
A closure plan should specify responsibility for notices, records, remaining property, licenses and unresolved claims. Turning off the website or dissolving an entity is not proof that debts or guarantees disappeared.
Sources and further reading
General educational information. The original evidence, dates and recorded qualifications are available in the optional archive below.