10 Things to Know About Chapter 11 Bankruptcy

BankruptcyChapter 11 bankruptcy is primarily filed to restructure or reorganize an existing company or business. A Chapter 11 business debtor usually is one that is generating capital, but it is in financial distress due to poor investments, operational setbacks, bad management decisions, etc. Chapter 11 is designed to give a company or business the time and opportunity to restructure, reorganize, and re-evaluate some of its secured debt and reduce the amount of unsecured debt to a level where the organization can recover from financial distress. Here are 10 more things to know about Chapter 11 bankruptcy, so that readers will be more informed about their options.

1. The benefit of Chapter 11 bankruptcy is that it allows a company or business to continue operating while gaining time to regroup and restructure without the threat of creditor collection activities, lawsuits, or potential tax issues.

2. While Chapter 11 bankruptcy is quite similar to Chapter 13 cases, the main difference is that there is no debt ceiling as to what a business or individual owes. Moreover, it also allows the debtor to retain a significant degree of control over the proceedings unless it is determined that a trustee is needed.

3. When considering bankruptcy or debt resolution options, it should also be noted that Chapter 11 bankruptcy is also available for individual debtors, who can file in order to re-evaluate and reorganize their personal finances when their debt levels exceed those permitted under a Chapter 13 filing.

Bankruptcy

4. When filing for Chapter 11 bankruptcy, it is important to retain appropriate legal representation so that petitioners are aware of the various protocols and procedures involved in the Chapter 11 filing process, such as protecting assets that would otherwise be subject to liquidation, obtaining approval to remain in operation and pay wages while reorganizing a company’s corporate structure and debt, payment of debts over time (e.g. back taxes), constructing an appropriate restructuring plan for the company or business, and incorporating all debts into the bankruptcy plan (e.g. rent, taxes, equipment payments, loans, and other related expenses).

5. Additional things to know about Chapter 11 bankruptcy is that the reorganization plan is an essential component to any successful filing. The design, administration, and approval of the plan is crucial not only to its success, but also to the future growth of the company, business, or individual who has filed for debt protection.

6. Due to the substantial amount of work and legal proceedings involved in Chapter 11 cases, the fees associated with filing Chapter 11 are much more expensive than most consumer cases filed under Chapter 7 and 13. A typical Chapter 11 bankruptcy filing involves more procedures and reports built into the bankruptcy code and protocols, including a mandatory reorganization plan.

7. A typical Chapter 11 filing involves more procedures and reports built into the bankruptcy code and protocols, including the bankruptcy reorganization plan, first-day motions, disclosure statements, and monthly reports. Moreover, a Chapter 11 bankruptcy involves multiple court hearings over the course of the case, as well as negotiations with the U.S. Trustee’s Office and creditors.

8. Furthermore, a Chapter 11 plan is more extensive and detailed than those prepared in consumer cases. Therefore, the legal work involved in a Chapter 11 bankruptcy not only requires more time, but it also requires much more legal expertise and experience than the work involved in consumer proceedings.

Bankruptcy

9. Much like all bankruptcy proceedings, Chapter 11 cases also require a meeting of creditors, at which time a creditor or their appointed representative may evaluate and question the debtor or their representative regarding the contents of the debt filing and schedules. The U.S. Trustee will typically review the petition and schedules prior to the creditor meeting. A Chapter 11 creditor meeting will last approximately an hour as opposed to the much shorter meetings in Chapter 7 and Chapter 13 cases. In Chapter 11 cases, creditors are not required to file claims as long as they are listed on the schedules and feel they are being treated with due respect. The creditors are entitled to receive a distribution if they are listed on the debtor’s schedules, even without filing a claim in the Chapter 11 case. However, if a creditor is omitted from the schedules or they object with how they are being classified and treated on the schedules, a creditor must file a claim in the case.Bankruptcy

10. In Chapter 11 cases, creditors are not required to file claims as long as they are listed on the schedules and feel they are being treated with due respect. The creditors are entitled to receive a distribution if they are listed on the debtor’s schedules, even without filing a claim in the Chapter 11 case. However, if a creditor is omitted from the schedules or they object with how they are being classified and treated on the schedules, a creditor must file a claim in the case.

Among the many things to know about Chapter 11 bankruptcy is that it is designed to give a company or business the time and opportunity to restructure, reorganize, as well as re-evaluate some of its secured debt and reduce the amount of unsecured debt to a level where the organization can recover from financial distress. The purpose of a Chapter 11 filing is to restructure or reorganize an existing company or business. Moreover, a Chapter 11 business debtor usually is one that is generating capital, but it is in financial distress due to poor investments, operational setbacks, bad management decisions, etc. Hopefully, this article has addressed at least 10 things to know about Chapter 11 bankruptcy and readers will be more informed about their options.

Written and Edited By Leigh Haugh

Sources:
Wall Street Journal–Mr. Trump, You’re Fired for Chapter 11
Forbes–Three Lessons From the Woeful Tale of Molycorp
Wall Street Journal–Health Diagnostic Laboratory Enters Chapter 11
In Line Broadway Bull Photo Courtesy of Chris Brown’s Flickr Page – Creative Commons License