Chapter 11 Bankruptcy Attorney
Designed to provide debt relief to business owners, Chapter 11 bankruptcy reorganizes complex debt structures. It functions as reorganization where you, the filer, will be given a chance to reorganize or restructure your financial affairs by renegotiating the terms of debt payments with your creditors.
Chapter 11 can be best described as reorganization bankruptcy designed for businesses that want to keep their operations running but at the same time need time to reorganize their finances to issue bill payments to their creditors.
According to the US Bankruptcy Code, creditors are classified into different classes. These are:
- Secured creditors—a lien against property secures their debts
- Unsecured priority claims—where unsecured debts are prioritized first to receive money from the restructured plan
- Non-priority unsecured claims—these are only paid after the priority debts are fully satisfied
- Equity security holders—they get paid either before or even after other creditors and sometimes not paid at all.
Once filed, creditors shall be paid accordingly. But at the same time, they are prohibited from making any debt collection efforts. However, it does give the creditors the right to object to their assigned class and the proposed plan by the filer.
The filer has 120 days or 4 months to file a reorganization plan after the case has been filed in the US bankruptcy court. But if the debtor is a small business owner, then the timeframe can be increased up to 180 days from the date of filing the petition.
If the debtor fails to file a reorganization plan within the above-stated timeframe or their plan gets rejected, then by law, the creditor has the right to file a reorganization plan. However, the reorganization plan needs to be accompanied with a disclosure statement in writing. This statement is much needed to provide adequate information about the filer’s business affairs to the creditors so that they can make an informed judgment about the reorganization plan.
Here it is important to understand that the reorganization plan serves as a contract between the creditor and debtor defining how the business will operate and pay its financial obligations. Most often, these plans include downsizing to free up assets and reduce expenses. Furthermore, the repayment plan, once approved, can be completed between 6 months and 2 years.
From sole proprietorship to partnerships and national corporations, anyone can file for chapter 11 bankruptcy protection. In some cases, individuals can also file it, which occurs most often when their debts exceed the limit that is allowed for Chapter 13 on their unsecured and secured debts.
A chapter 11 bankruptcy process begins with petition filing with the court. Once that is done, a case number is assigned by the court, and the automatic stay comes into effect. Then comes the meeting of creditors where you have to answer all the questions and reservations of the creditors.
Once the creditors meeting is held, the debtor-in-possession begins the process of creating a workable reorganization plan that is acceptable to the court and the creditors. The term debtor-in-possession is used here to describe that the Chapter 11 debtor still retains their property and continues as a going concern. Moreover, they have the majority of the rights as well as a bankruptcy trustee responsibilities. But the only right that is unavailable is the compensation right. Keep in mind that many of the rights and powers that are given to the debtor-in-possession can be exercised only after the approval of the court.
Also, any of your creditors can seek the appointment of a bankruptcy trustee if they think that it is in the best interest of the bankruptcy estate and also the creditors especially when the debtor-in-possession mismanages its assets.
When it comes to developing a reorganization plan that is workable and acceptable to the creditors, you need to draft a disclosure statement, which is a document that describes the debtor’s structure and how they conduct their business.
This statement should include adequate information for the creditors to understand and determine whether reorganization is an option or possible in your situation. Then it should be approved by the court before the next step, and that is voting on the plan.
On the other hand, a trustee shall be appointed by the court if the debtor doesn’t want to work as debtor-in-possession or the debtor is incompetent or has a history related to fraudulent activities or incompetence.
At this stage, the debtor must propose the plan to the creditors and get votes. The creditors of all classes must approve it and so should the judge in order for it to be implemented. However, there is one exception to this rule, and that permits confirmation under a process that is known as a cramdown.
A cramdown is the bankruptcy reorganization plan’s imposition by the court despite of any class the creditors rejecting it.
Most often, a planning agent is appointed for the plan’s execution. It is mostly the third party. For example, the reorganization plan provides for the payments of $40,000 per month to creditors. Here the planning agent shall deal with the logistics of making the payments.
In addition to this, the plan shall also focus on how the business or individual will work to generate money for creditors.
This occurs if and only upon substantial consummation of the plan where the majority of the payments to the creditors are completed.
Depending on the situation of the filer, a Chapter 11 bankruptcy can work like a reorganization of debts similar to a Chapter 13 or as liquidation similar to a Chapter 7. If it works like liquidation, then the plan will close the filer’s business operations and they’d have to sell off all their remaining assets for the benefit of the creditors in order to pay then back at least a portion of the owed debts.
One of the biggest obstacles in filing a Chapter 11 bankruptcy is the cost factor. The case fee for Chapter 11 is around $1,167 far greater than Chapter 7 bankruptcy. Additionally, Chapter 11 debtors pay regular administrative fees to offset the US trustee’s participation cost. Also, it is highly contentious and may involve several creditors which further increase the overall the cost of the case.
Although Chapter 11 has a high cost, it is worth every dollar spend especially because of the benefits it offers. These include:
- It allows you, the debtor, to continue business operations while you make debt payments. Do you know what does this mean? It means that your business name, customer base and goodwill isn’t lost even after you file for bankruptcy.
- It helps partially return unsecured debts.
- The automatic stay comes into effect right away upon petition filing which gives you, the debtor, the freedom from harassing collection calls at home and at office hours.
- You get the freedom and flexibility to restructure your secured debts as payments can be lower as well as spread over a long period of time.
- You can use it for adjusting certain interest rates such as high interest rates on loans that are secured by commercial equipment or certain real estate.
- Majority of the debtors don’t have to liquidate assets. This is because even if some creditors are unhappy with receiving less than the amount that the debtor fully owns, creditors are usually receptive to the debt reorganization plan. This is because in Chapter 7 after the assets are liquidated, the creditors mostly get little or nothing. Thus, they have chances of getting more in Chapter 11 instead of under a Chapter 7 bankruptcy filing.
For more information on a Chapter 11 bankruptcy or service assistance contact us today. At Shiner Law Group, we have a team of experienced Florida bankruptcy lawyers who can assess your case and recommend you the best legal action accordingly.
At Shiner Law Group, we work in the best interest of our clients. Our lawyer will assist you from start to finish thereby making sure that your case is completed successfully and you are debt free in the fastest possible time.