All you Need to Know about Chapter 11 Bankruptcy
Most people are acquainted with chapter 7 and chapter 13 bankruptcy options, but only a few know about chapter 11. What is chapter 11 bankruptcy? It is a plan, which allows debtors to reorganize their financial operations while still maintaining their assets. Usually, they sell certain assets and use the revenue to pay back the debts they have. While it usually used by businesses, it is also an appropriate way of solving financial problems for individuals.
What does filing for bankruptcy chapter 11 involve?
1. Eligibility test
Before we delve deeper into what is a chapter 11 bankruptcy, it is best to start with who is eligible for this kind of plan. Any individual or business can file for this bankruptcy plan. Concerning businesses, it does not matter whether it is a national corporation or a sole proprietorship – business is business!
Maybe you are surprised that chapter 11 bankruptcy is available for individuals. Your notion that it is meant for big companies is actually shared by many people. It could have stemmed from the fact that mostly; it is the large corporations like Borders Books that have been in the limelight.
The code does provide for individuals with protection over their assets. What is chapter 11 bankruptcy for individuals? It works best for individuals whose debt surpasses the set limit for chapter 13. This is precisely $1, 081, 400 secured debt and $360 475 of unsecured loans.
2. Debtor in possession
Once a business or individual files chapter 11 bankruptcy, they get a relief from the pressure of the creditors. Any effort from the creditors to collect the debt is stopped. The debtor gets protection from all the actions the lenders can take to acquire their money back. This may include property foreclosure and lodging a lawsuit.
Under the plan, the debtor continues to run his businesses normally. The only time a trustee will be appointed is when the court notices cases of dishonesty, fraud, gross mismanagement and incompetence or if it is the best thing for the creditors. However, this is rare. As you search for information about what is bankruptcy chapter 11, you will also want to know the role of the debtor in possession. The debtor in possession is mandated to offer a reorganization plan outlining how he intends to raise money to pay the creditors and the schedule of pay.
What is the timeframe of chapter 11 bankruptcy?
Within a period of 4 months, the debtor is supposed to file for reorganization and will have 180 days to solicit for the plan. The debtor may ask for the extension of these periods but with a valid reason. However, if the period elapses and they have not requested for an extension yet, any of the interested members or creditors can perform the task on the behalf of the debtor.
If the parties in interest do establish that the debtor is mismanaging the property, using the period to negotiate terms with the creditors or they are not doing it in good faith, they can request for a third party to create a practical competing plan.
When a case is complex, a committee of unsecured creditors is formed to represent the interests of each of the creditors. They act as the eyes of the lending institutions and they act as the debtor’s link to the creditors. Their duty is to ensure that the debtor manages the estate well and meets their obligations to the lenders.
What does a reorganization plan involve?
When filing for chapter 11 bankruptcy, the plan of reorganization offers you efficient tools for restructuring your financial operations. For instance, one plan may enable a debtor to turn down leases or contracts. This comes in handy when a debtor has entered a prolonged contract, which is no longer instrumental to the business.
Another benefit of the plan is that it gives the debtor enough time to repay their debt. For example, a loan that was supposed to be paid within 2 years may be stretched to five years. It may also allow you to reduce the interest rates or any other strict terms. The business or the person in question in the case of chapter 11 bankruptcy for individuals is allowed to sell their assets void of liens.
For a reorganization plan to be effective, it must be approved by the bankruptcy court. In some cases, some creditors are required to vote for or against the plan. The creditors who are to do the voting include those who are to be paid over a long time or whose payments have been trimmed.
The unaffected lenders are deemed to accept the reorganization plan as it is whereas those who are not compensated in any way should reject it. For the plan to get an approval, about two thirds of the lenders and 50% of lenders in dollars must have voted for it.
Even if it passes the review process by the creditors, the court must see to it that it meets the conditions for chapter 11 bankruptcy debt reorganization plan. There are three outcomes of this process. The court may approve, dismiss or change the filing to chapter 7. If approved, the business stays under the jurisdiction of the bankruptcy court until they make the last payment.
What is chapter 11 bankruptcy for business? You now understand how it works as well as the one for individuals. Do not hesitate to seek the assistance of our attorneys for more information.
My name is Craig R. Chlarson. Whether you are seeking to eliminate your debt, typically through a chapter 7 filing, or whether you are seeking to reorganize your debt, typically through a chapter 13 filing, or even if you have basic bankruptcy questions, call me today. I can help you.
To schedule an appointment, call (435) 901-3449
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