Protect Business - Chapter 11 Bankruptcy
Chapter 11
Save Your Business - Reorganize Your Debt
Chapter 11 bankruptcy is a reorganization of debt for an entity or consumer (who chooses not to file a Chapter 13 or whose sum of assets exceed $871,550.00 and/or whose sum of debts exceed $290,525.00). Chapter 11 provides an opportunity for the company to stay in business and reduce and/or postpone some repayments of debts. Management continues to operate the day-to-day business, but the bankruptcy Court must approve all significant transactions for the acquisition or liquidation of business assets.
The filing of a Chapter 11 initiates the business’ protection by putting in place the automatic stay, i.e., creditor(s) cannot take action against the debtor (i.e., corporation, partnership, sole proprietor, or consumer). This period provides the needed time in which negotiations can take place to resolve the debtor’s financial situation.
Once the petition is filed, the debtor retains control of its company as a debtor-in-possession: The Debtor has 120 days in which to formulate and file a plan of reorganization with the Court. The plan of reorganization must designate classes and interests and what the classes of creditors will receive under the plan. The plan must be fair and equitable, providing for its own execution. The Court confirms the plan, after determining what is in the best interest of the creditors, even at times over the objections of one or more classes of creditors.
Reorganization requires the debtor to propose a plan of repayment. The debtor as a debtor-in-possession continues to operate the business. Creditor committees are created to represent the interests of creditors. After the plan is developed, the plan and a disclosure statement are filed with the Court for confirmation. Once the Court confirms the plan, the debtor, acting as its own Trustee, carries out the provisions of the plan by distributing the securities or payments.
Generally, the corporation, partnership or sole proprietorship that files a Chapter 11 does so for one of two purposes: To reduce or postpone some repayments in order for the business to become viable again. Alternatively, a Chapter 11 is filed to liquidate the business assets and pay off the business creditors. In a Chapter 11 liquidation creditors will often realize more than in a Chapter 7 bankruptcy.
