A Chapter 11 bankruptcy is designed to assist business and corporations that are faced with difficult financial circumstances create a strategy to payback debt by reorganizing their operation. An attractive characteristic of the Chapter 11 bankruptcy is management is not obligated to give up control of the business while reorganizing.
How To File Chapter 11 Bankruptcy
All businesses have to meet certain requirements to qualify for a Chapter 11 bankruptcy. These include:
- The debtor is a corporation, partnership, individual or any other business entity.
- The debtor must to file a schedule of assets and liabilities, current expenses, current income, a statement of financial affairs, as well as a schedule of contracts and leases.
- The debtor is not permitted to file for bankruptcy if the debtor had a prior bankruptcy filing that was dismissed during the preceding 180 days as a result of failure to appear in court, comply with court orders.
- Finally, any individual attempting to file under Chapter 11 protection must attend a creditor counseling course from an approved agency during the preceding 180 days.
Businesses that enter into a Chapter 11 bankruptcy protection assume debtor-in-possession role. This means that it is the sole responsibility of the business to examine claims by creditors, account for property, and file reports requested by the court on time. The business is also allowed to get the help of accountants and a legal team to assist in the preparation of the reorganization proposal.
The debtor-in-possession has a fiduciary responsibility to operate with the highest standards for the protection of both the company and its creditors.
Chapter 11 Bankruptcy Trustee
Each Chapter 11 case is assigned a U.S. Trustee or Bankruptcy Administrator to oversee the bankruptcy proceeding of the debtor-in-possession / business. In addition, the Trustee is responsible for evaluating reports submitted by the debtor containing information relating to the financial status of the business. The Trustee will also arrange a meeting between the debtor and its creditors. At this meeting, creditors are given the opportunity to question the debtor under oath about the company’s financial situation
Bankruptcy petitions filed under a Chapter 11 bankruptcy are protected of the “automatic stay” that prohibits all creditors of the business from pursuing any collections activities. If the creditors are successfully able convince the court and the Trustee court that it is best to convert the Chapter 11 bankruptcy to a Chapter 7 bankruptcy case, then the business will be liquidated. The liquidation can also be proposed during the Chapter 11 bankruptcy provided that management believes it can generate income from breaking up existing business divisions.
When the sale of property will not affect the reorganization of the business and if the property has no equity.Under certain circumstances, a creditor of a secured asset may be permitted to foreclose on property, sell it, and then apply the proceeds of the sale to pay debt.
Chapter 11 Bankruptcy Reorganization Plan
After filing for bankruptcy, the debtor has up to three months to file the reorganization plan. If required, the court will grant an extension for up to 18 months for the debtor to submit the Chapter 11 bankruptcy reorganization plan. Generally, the acceptance of the plan takes place within three months after filing the Chapter 11 bankruptcy petition. The Court can delay the acceptance of the reorganization plan for up to 20 months. The creditors can file on behalf of the debtor if the event that the debtor is unable to file and obtain acceptance of the plan.
In order for the court can confirm and approve the reorganization plan, three requirements have to be met:
- The plan must be proposed in good faith.
- The plan must be deemed feasible. This means that the plan will only result in liquidation if liquidation plan is proposed.
- The plan must comply with all provisions of the Bankruptcy Code.
ZocLaw.com’s experienced Chapter 11 bankruptcy lawyers will go out of their way to make this complex legal process as simple as possible. From preparing your reorganization plan to post bankruptcy support, we will be by your side every step of the way. Schedule your free initial consultation today by calling 888-433-8444 or by visiting www.zoclaw.com.