What is Chapter 11 Bankruptcy

A Chapter 11 bankruptcy is a business bankruptcy filing and is usually done when either a corporation, sole proprietorship, partnership or small business is facing insolvency and is looking for debt relief. Recently coronavirus has made this filing more common due to a reduction of cash flow and customer base. Due to this increased issue with small businesses filing Chapter 11 the federal government has created the subchapter v bankruptcy option specifically for small businesses during this trying time.

When to Hire a Bankruptcy Attorney?

Because the Chapter 11 form of bankruptcy is for a business there are important differences from a Chapter 13 bankruptcy or Chapter 7 bankruptcy. Depending on your level of knowledge of the bankruptcy process and bankruptcy law you may consider retaining a bankruptcy attorney. A bankruptcy lawyer can help you put together a proposed plan to submit to the class of creditors who may approve or deny the plan depending on each creditors’ claim. An experienced bankruptcy attorney can be an important key factor leading to a successful outcome of the bankruptcy case.

Chapter 11 Business Bankruptcy Overview

Below you’ll find information regarding how the Chapter 11 reorganization and bankruptcy filing gets started and how it progresses. We cover the bankruptcy court hearings and documentation-heavy phases, how a disposition is reached with court approval. Next we go over how ultimately one should proceed with business operations in order to stay in business while restructuring financial obligations in a fair and equitable manner.

There are two points that need to be made in regards to filings under Chapter 11 of the United States Bankruptcy Code:

  • The bankruptcy petition can either be voluntarily filed by the debtor or involuntarily by creditors under certain conditions.
  • Although it’s rare, individual business owners can file.

If the petitioner is an entity, the following documents will need to be provided to the court:

  • Schedules of assets and liabilities and income and expenditures
  • A schedule of current secured debt and unsecured debt
  • A schedule of secured creditors and unsecured creditors
  • A schedule of executory contracts and unexpired leases
  • A statement of financial affairs

If the petitioner is an individual, he or she must also file:

  • A certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling
  • Evidence of payment from employers, if any, received 60 days before filing
  • A statement of monthly net income and any anticipated increase in income or expenses after filing
  • A record of any interest the debtor has in federal or state qualified education or tuition accounts

In addition to the documentation required above, the company filing must pay a $1,000.00 filing fee and a $39 miscellaneous fee. However, individual debtors can pay the fee in up to four installments.

Progression of an Oklahoma Chapter 11 Bankruptcy Case

When the petitioner files the appropriate documentation, the case progresses to the next phase. This phase can include several complicated steps. The most critical step that’s taken at this point is the filing of the Plan of Reorganization.

The Plan of Reorganization is basically a proposal for how the business filing bankruptcy protection will operate for the foreseeable future based on its income, assets, and its liabilities. Since the majority of filings under this chapter are done by businesses, and it’s difficult to predict the specific amount of revenue that will be generated, the petitioner basically becomes what’s known as the Debtor in Possession of the estate. When a valid petition and plan are filed, the court will generally issue an Automatic Stay, which prevents immediate liquidation of assets and creditors from continuing their collection efforts.

In other bankruptcy chapters, a bankruptcy trustee is put in charge of the business and other bankruptcy property. With Chapter 11he Debtor in Possession is charged with making day-day decisions regarding how to proceed during the reorganization process, but that party does not have unfettered discretion in terms of those decisions. The court also generally names members to a Creditor’s Committee, and that committee helps to oversee the bankruptcy estate with the Debtor in Possession.

After a plan is presented, it is offered to creditors to either approve it or to make motions against it as stated above. These motions usually concern parties seeking relief from the Automatic Stay, the desire to obtain credit for the operation, or questions regarding how to deal with cash flow or even loan collateral.

If a creditor wants a say in how the bankruptcy estate will be managed, that creditor must also file a claim with the court. This claim states in general that the debt tied to that creditor is in dispute in some way. In essence, the filing of a claim preserves the right to file an adversarial proceeding at some point during the case, whether the creditor is listed on the schedule of creditors or not.

Disposition of the Case

There is an exclusivity period embedded in the courts timeline in which the debtor is given sufficient time to formulate their plan of reorganization. This may involve stabilizing operations, negotiating with creditors, and exploring all available options to create a plan with the most value to the debtor. The debtor must however take into account any conflicting goals of the groups involved.

Ultimately, after the bankruptcy plan has been presented but before it’s voted on for approval, the debtor must file a written disclosure statement with the court that basically provides all parties with enough information about the affairs of the debtor to allow the creditors to make an informed judgment about the plan at issue. If the disclosure statement is approved, the debtor must file the following documents with the court, according to the U.S. Bankruptcy Code:

  • The plan or a court-approved summary of the plan
  • The disclosure statement approved by the court
  • Notice of the time within which acceptances and rejections of the plan may be filed
  • Other information as the court may direct, including any opinion of the court approving the disclosure statement or a court-approved summary of the opinion

If no problems arise during the last few steps of the process, the plan is accepted, the debts are discharged, and the entity follows the tenets of the plan. If all payments are made, and no additional issues arise during the plan’s existence, then the court will issue a final decree when the plan is complete.

We Can Help

If you need a reorganization of your assets, debts, and liabilities and need the time and peace of mind to do so without creditors hounding you, contact The Gooding Law Firm today to schedule an initial consultation.