PARAMUS, N.J., July 10, 2012 /PRNewswire/ -- Chapter 11 Bankruptcy was introduced in the Bankruptcy Reforms Act of 1978, which became effective on October 1, 1979. The idea behind Chapter 11 was to make it possible for debt-ridden businesses to reorganize affairs, pay up debts and return to their profitable ways.
In June 2012, some prominent lawmakers determined that since Chapter 11 is generally more effective for larger companies, it can sometimes present challenges for small businesses.
For example, Senator Sheldon Whitehouse has gone on record and stated that Chapter 11 bankruptcy was designed for large corporations and was not particularly helpful for small businesses. The Senator made his remarks after the Senate Judiciary Committee approved bipartisan legislation (Small Business Reorganization Efficiency and Clarity Act) that would go on to modify Chapter 11 bankruptcy so that small businesses could cope with it better. 
Some believe that this implies that small businesses that had filed for Chapter 11 bankruptcy in the past could have possibly faced problems as they restructured their operations. However, with the new legislation coming in, the Chapter 11 road may become smoother.
Chapter 11 bankruptcy in its current form is an extensive process. Struggling small businesses often find it difficult to come up with the money required to hire qualified financial and legal experts, as well as find the time required in and out of court. The Chapter 11 process can also take away some control from the business owner's hands at a crucial stage of the company's lifecycle.
In a white paper published by Joseph A. Guzinski, the Acting General Counsel, Executive Office for United States Trustees, a Chapter 11 bankruptcy can be surrounded by risks like disinterested crisis managers and claims-trading by creditors, which changes the creditors' body mid-way. 
It is a good sign that the needs of the small business owner in the bankruptcy process are finally addressed. It is very encouraging that positive legislation is even being considered for small businesses. However, as helpful as this proposed bill could be, it is important to remember this is just a bill. It is not a law and therefore is not binding in any way. It must be passed by the Senate and the House. And there are no guarantees this is possible. Just 21% of all Senate bills reported favorably by committee in 2009–2010 were enacted. 
For any small business owner facing overwhelming debt obligations, it makes sense to carefully consider the pros and cons of Chapter 11 bankruptcy. Every business owner must consider filing for Chapter 11 bankruptcy only if the business needs it. If it doesn't, the owner should explore other options.
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