Can non-profits file for bankruptcy?

On Behalf of | Apr 18, 2021 | Bankruptcy |

Contrary to popular belief, filing for bankruptcy doesn’t mean that your company is automatically out of business. Rather, your business is fully capable of remaining in operation. This holds true even if it is a non-profit organization.

What is Chapter 11 bankruptcy?

Unlike Chapter 7 bankruptcy, where a business files to liquidate its assets, Chapter 11 bankruptcy is filed to help a business reorganize its operations to restructure the future repayment of its debts. After a non-profit applies for a Chapter 11 bankruptcy, its debt payments will be on hold until it can restructure a plan for paying off its debts.

Each non-profit filing for this type of bankruptcy will need to submit its reorganization plan to the bankruptcy judge. The judge will consider the reorganization plan and listen to a committee made up of the non-profit’s current creditors to determine whether or not the plan is fair. In the event the plan is deemed fair, the judge will approve it. When this happens, a creditor may not legally force the non-profit to pay its debts while it reorganizes.

How can you operate during the bankruptcy process?

While your business is still legally able to operate as it undergoes the Chapter 11 bankruptcy process, there are specific requirements that must be met. First, the business will need to provide frequent reports to the bankruptcy judge and the creditors’ committee. In the event the non-profit is unable to meet its initially approved reorganization plan, it will need to apply for a modification. If a modification is not approved, it may be ordered to shut down by the bankruptcy judge.

Unfortunately, not all non-profit organizations can meet their debt obligations. If your organization’s ability to meet your financial obligations has gone by the wayside, it may be advisable to file for Chapter 11 bankruptcy. You should consider hiring an attorney to help you throughout the entire process.