CHAPTER 11 BANKRUPTCY INFORMATION
A Chapter 11 Bankruptcy is sometimes referred to as a "Reorganization". Corporations, partnerships, or larger businesses (that do not qualify for Chapter 13), usually use chapter 11 to reorganize their debt.
Who Can File Chapter 11
A corporation or a partnership can not file a Chapter 13. They may choose to file either a Chapter 11 or Chapter 7 Bankruptcy. Although an individual can file a Chapter 11, many people find that Chapter 11 is simply too costly because of the extensive requirements that Federal Bankruptcy Law imposes. A Chapter 11 can easily cost 10 times (or more) that of a Chapter 13 Bankruptcy in legal fees and other related costs. Also, the plan in a Chapter 11 is usually much more complex than a plan in a Chapter 13.
Variations of Chapter 11
Chapter 11 plans vary a great deal. You can create a straight liquidation plan, that shuts down your business, sells (or gives back) all of your property, and pays whatever you can to the creditors. Or, you can create a plan where you stay in business and pay all of your creditors in full over a period of time. Note that a Chapter 11 plan could be created somewhere in the middle of these two extremes.
If you (or your business) canít currently pay your bills due to temporary cash flow problems, a Chapter 11 may help you extend or reduce your debts, and perhaps even help you eliminate some of your operating costs.
As with any bankruptcy, in a Chapter 11, you must file a full and accurate petition with the Federal Bankruptcy Court. And, as with the other bankruptcy cases discussed in this website, protection from creditor actions automatically goes into effect when your petition is filed. That protection is often referred to as the "automatic stay". However, there are certain types of actions that are not covered by the automatic stay. In most cases the actions not covered by the automatic stay are the exception, rather than the rule.
In a Chapter 11, you file an extensive Disclosure Statement. The disclosure statement is a document that must contain enough information regarding your assets, liabilities, and affairs, so that creditors can make an informed judgment about the plan. After the disclosure statement is filed, the Bankruptcy Court holds a hearing to determine whether it should be approved. You can not seek acceptance or rejection of the plan without prior approval by the court of the disclosure statement.
Plan of Reorganization and Classes
Additionally, you may file a detailed plan of reorganization. You need to file your plan of reorganization within 120 days of filing your bankruptcy. If you do not file a plan of reorganization within 120 days, a party in interest (such as a creditor, or creditorsí committee) may be able to file a their own plan.
The plan of reorganization must include classification of claims, and must specify how each class of claims will be treated under the plan. Similar creditors are classified together. Under Chapter 11, a creditor within certain classes can vote against the plan. What you seek to achieve is acceptance by each class of claims.
A class of claims has accepted the plan if at least two-thirds in amount and more than one-half in number of the allowed creditors in that class vote in favor of the plan. A plan with creditors support, is usually more likely to be approved by the bankruptcy court, and cost you less in legal fees. If there are "impaired" classes of claims in the plan, the court cannot confirm the plan unless it has been accepted by at least one class of non-insiders whose claims are impaired under the plan. An impaired claim is a claim that is not going to be paid completely or in which some legal, equitable, or contractual right is altered. Even if at least one of the aforementioned impaired classes have accepted the plan while other classes vote against it, there may be still more requirements that must be met in order to confirm the plan. Additionally, the plan must be approved by the Bankruptcy Court.
There are many complexities to a Chapter 11 Bankruptcy. Your particular situation may involve many exceptions or variations not discussed in the information above. For more details on your particular situation, please call our office for an appointment.
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As with any of the other information provided in this website, this information is for general information purposes only. The information on this site is NOT legal advice, nor is any part of it provided in the course of an attorney-client relationship.
Copyright © 2006 Merv Waage