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Filing Chapter 11?

Filing Chapter 11?

Chapter 11 of the United States Bankruptcy Code is a debt relief option specifically available to corporations, partnerships, and limited liability companies. It’s commonly referred to as the “reorganization bankruptcy” option because it allows businesses to restructure their debts, obligations, and assets. In rare cases, individual debtors can also file for Chapter 11 so long as they don’t qualify for Chapter 7 or 13.

There are many benefits to filing Chapter 11, including:

  1. A business can continue its normal operations
  2. A debtor can sell assets without liens
  3. The process can release a business owner from specific leases
  4. The automatic stay stops most civil lawsuits and collection activities
  5. A debtor can partially pay back certain unsecured debts
  6. No debts are considered nondischargeable
  7. The process eliminates or reduces tax penalties

The primary purpose of this bankruptcy option is to help businesses become profitable again. In the past, many well-known companies have benefited from completing Chapter 11, including General Motors and United Airlines.

Your Chapter 11 Reorganization Plan

To initiate Chapter 11, an individual or business needs to pay the appropriate filing and administrative fees, file a petition, and propose an effective reorganization plan. This plan prioritizes which debts need to be paid first; for example, state and federal tax agencies, employees, and stockholders each have their own categories and priority levels. The court will meticulously review a debtor’s proposal to determine its feasibility before approving it. If the debtor fails to file a plan within 120 days, then the case trustee or a creditor can submit a competing plan.

A reorganization plan can involve:

  1. Downsizing operations
  2. Renegotiating leases and contracts
  3. Renegotiating debts
  4. Liquidating assets

Once a reorganization plan is in place, a debtor is responsible for making the scheduled payments. If the debtor fails to pay their creditors, the court may dismiss the case and convert it to Chapter 6, the “liquidation bankruptcy” option.

Chapter 11 for Small Businesses

Chapter 11 is also available for qualifying small businesses. According to the Small Business Administration, a “small business” has less than 500 employees and accrues $7.5 million in average annual receipts. However, the court may choose to convert a small business case to Chapter 7 if the business has little chance of becoming profitable again.

To benefit from Chapter 11, small businesses are required to file:

  1. A statement of operations
  2. A copy of the most recent balance sheet
  3. A cash-flow statement
  4. A copy of the most recent federal income tax return

Unlike large corporations, small business debtors have 180 days to negotiate with their creditors and file a reorganization plan. Because this can be an expensive legal process, it’s important to discuss your legal options with a qualified and experienced bankruptcy attorney before filing a petition.

What Is a Bankruptcy Trustee?

A trustee isn’t appointed in most Chapter 11 cases. Instead, the debtor (as the “debtor in possession”) remains in control of all business operations under section 1108 of the United States Bankruptcy Code. However, a trustee may be appointed to oversee business operations if the court finds sufficient cause.

Trustees technically aren’t government employees, but they are managed by the United States Trustee Program, which is a division of the Department of Justice. The trustee ensures the integrity of the Chapter 11 process while also representing the interests of a debtor’s creditors.

This trustee can be responsible for:

  1. Overseeing business operations
  2. Submitting operating reports
  3. Conducting the meeting of the creditors
  4. Reviewing disclosure statements
  5. Monitoring fees and disbursements

How Long Does Chapter 11 Take?

It’s difficult to approximate the duration of a Chapter 11 case. While some cases can close within a few months, most take about 6 months to 2 years.

Contact our Business Bankruptcy Lawyers Today

If you have questions about this bankruptcy option, contact the Northbrook Chapter 11 bankruptcy attorneys at Bach Law Offices today. We can review your financial status, evaluate your bankruptcy options, and guide you through each step of this legal journey.

Explore your bankruptcy options today. Call Bach Law Offices at (847) 448-0025 to schedule a free, no-obligation consultation.

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