Chapter 11 bankruptcy allows businesses to reorganize their financial obligations. Large businesses frequently use Chapter 11 bankruptcy, and some high-net-worth individuals find filing for Chapter 11 bankruptcy beneficial. The benefits of filing for Chapter 11 bankruptcy in California include restructuring debt and creating a feasible plan to make payments on their debt.
At Heritage Legal, PC, we partner with other law firms to help our clients resolve business insolvency challenges by filing for Chapter 11 bankruptcy. Founding attorney Christopher Heritage has invaluable experience in complex bankruptcy matters. Contact our law firm today to schedule your free initial consultation and get the process started.
Understanding the Chapter 11 Bankruptcy Process
Chapter 11 bankruptcies are often called reorganization bankruptcies. During the legal process of Chapter 11 bankruptcies, a bankruptcy trustee appointed by a federal bankruptcy court will supervise the reorganization of the business’ debts. Typically, the trustee will develop a five-year reorganization plan. As part of the plan, the debtor makes monthly payments for an agreed-upon period. At the end of the Chapter 11 bankruptcy process, the bankruptcy court will discharge some of the business’ debts and liabilities.
Chapter 11 Bankruptcy Eligibility
Many people are surprised to learn that individuals can file for Chapter 11 bankruptcy, mainly because large corporations most frequently file for this type of bankruptcy. While corporations file Chapter 11 bankruptcies most often, individuals, sole proprietorships, and partnerships can file for Chapter 11 bankruptcy. Typically, individuals file for Chapter 11 bankruptcy when their debts exceed the limits for filing for Chapter 13 bankruptcy. At Heritage Legal, PC, we will evaluate your financial status and help you determine whether filing for Chapter 11 bankruptcy is your best option.
The Chapter 11 Bankruptcy Process
If you’re considering filing for Chapter 11 bankruptcy, the sooner you speak with an experienced lawyer, the better. Businesses that file for Chapter 11 bankruptcy need to submit extensive and detailed financial records. Attorney Christopher Heritage can help you gather and organize all of the information you’ll need to apply for Chapter 11 bankruptcy successfully. The Chapter 11 bankruptcy process begins when the debtor files a petition in the bankruptcy court. The debtor will need to submit a schedule of all of the following documents along with the bankruptcy petition and filing fees:
- Income
- Expenditures
- Assets and liabilities
- Executory contracts
- Unexpired leases
- Statement of financial affairs
The Debtor in Possession
As soon as the Chapter 11 bankruptcy petition has been filed, the debtor assumes the role of “debtor in possession.” Many of our clients are relieved that they can keep operating their businesses while going through Chapter 11 bankruptcy. At this point in the process, the debtor in possession becomes a fiduciary on behalf of the creditors.
The debtor will automatically take over the “debtor in possession” role, allowing the debtor to continue to manage the business’s assets and operations during the reorganization process. The debtor in possession must take control of the business operations, account for property, and manage the employment of attorneys, accountants, and auctioneers involved in Chapter 11 bankruptcy. If the management of the assets is less than honest, or ineffective, the bankruptcy court will appoint a trustee.
The Chapter 11 Bankruptcy Reorganization Plan
The debtor must submit a reorganization plan within 120 days of the date the debtor files the bankruptcy petition. As long as the debtor provides the reorganization plan proposal within 120 days, the court will grant the debtor another 180 days to confirm the plan. If you are considering filing for Chapter 11 bankruptcy, your reorganization plan is incredibly important.
Your reorganization plan will designate different classes for creditor claims, listing creditors in order of their priority. Creditors with secured debts should have top priority when it comes to repayment. The court will only confirm a reorganization plan after enough affirmative votes from creditors. Creditor votes are a function of the monetary amount of their claim against the debtor.
Even if one class of creditors objects to the plan, the court will confirm the plan if the requirements are met..
The Benefit of an Automatic Stay in Chapter 11 Bankruptcy
During the Chapter 11 bankruptcy process, courts can issue an automatic stay. Automatic stays are incredibly beneficial for businesses struggling with their debt load. After a judge issues an automatic stay, all foreclosures, judgments, collection activities, and property repossessions by creditors become suspended. The automatic stay becomes active as soon as you file your Chapter 11 bankruptcy petition.
Many of our clients benefit from an automatic stay because it gives them invaluable time to evaluate their situation and develop a viable plan. Debtors can engage in negotiations with creditors during the automatic stay to resolve their debt. In some cases, the debtor’s secured creditors can seek relief by foreclosing assets and applying the proceeds to their debts.
The Discharge of Debt in a Chapter 11 Bankruptcy
Typically, reorganization plans to appoint a third party tasked with executing the terms of the plan. The debtor is responsible for making monthly payments to creditors. The designated reorganization plan agent is in charge of managing the logistics of making these payments. Reorganization plans will also state how the debtor should operate to generate enough income to make the payments.
The reorganization plan will designate a date when the debtor will receive a discharge of qualifying debts. Typically, the discharge happens after most of the plan has been executed, and the majority of payments to the debtor’s creditors have been made.
Contact Our Palm Springs Chapter 11 Bankruptcy Law Firm Today
If your business needs to begin the Chapter 11 reorganization process, hiring a skilled lawyer is necessary. The rules and requirements governing the Chapter 11 bankruptcy process are exceptionally complex. Contact our Palm Springs Chapter 11 bankruptcy attorney today to schedule your free initial consultation. |