Filing Chapter 11 Bankruptcy
Many businesses are struggling to pay their debts. Big and small companies are using Chapter 11 bankruptcy to reorganize their debt and remain operational. Filing Chapter 11 bankruptcy is not as common as filing a Chapter 7 and Chapter 13 bankruptcies.
All businesses and is some cases individuals can enter into a Chapter 11 bankruptcy filing. It is a tool by which companies that are battling to pay their creditors get a chance to reorganize their debt and remain open.
Although Chapter 11 bankruptcy is usually used by large companies it is also available to individuals and sole proprietorships as well. When the debt exceeds the limits of a Chapter 13 bankruptcy, an individual is eligible to file for a Chapter 11 bankruptcy.
After Chapter 11 bankruptcy filing, the individual or company becomes the debtor-in-possession. This means that the company or individual that filed the bankruptcy retains control of the business operations and the business continue as usual. If the court decides that the debtor in possession is mismanaging assets and business operations, the court will appoint a trustee to replace the debtor in possession.
When the company or individual files for bankruptcy with all documentation and the creditors have met, the debtor will start to prepare a reorganization plan that must be acceptable to the court and the creditors.
The business has to draft a disclosure statement . This disclosure statement must have accurate information about the company’s operations and how the company conducts its business. The creditors will use this information to determine whether a reorganization plan is viable. This disclosure statement must be approved by the court.
The business has to propose a reorganization plan to continue operating and make payments to the creditors. Creditors are divided into classes according to type of debt. The plan is voted on by the creditors and has to be approved by the court.
Once the plan is approved by the court and creditors it is confirmed and certified. The individual or company has to implement the plan and make payments accordingly. Often a plan agent is appointed to execute the reorganization plan and to ensure that creditors are paid as per the plan. The reorganization plan period may vary. Some reorganization plans may take several years.
The debtor may receive discharge of certain debts once the reorganization plan is confirmed. This discharge is received usually after the majority of the creditors are paid and after the plan has been implemented and run its course.
Filing Chapter 11 bankruptcy is costly. Initial cost to file a chapter 11 bankruptcy is $ 1,167 and is far higher than the fee for a Chapter 7 bankruptcy. Debtors have to pay regular fees to the US trustee for their participation in the bankruptcy proceedings. The complex nature of a Chapter 11 bankruptcy usually requires paying the bankruptcy attorney a considerable retainer. This makes filing a Chapter 11 bankruptcy expensive and may cost more with negotiating with sticky creditors.
If a Chapter 11 bankruptcy filing is not well executed, it can be very expensive. Our business debt relief lawyers have assisted many businesses restructure their debt through filing Chapter 11 bankruptcy. Schedule your free initial consultation today.