If you own a business or have a high net worth, you can file for bankruptcy without selling all your assets.Chapter 11 bankruptcy can help reorganize your debt and discharge some of it. The Chapter 11 bankruptcy lawyers at OakTree Law can help you navigate the complexities of the process, use it to relieve the burden of debt, and achieve long-term financial goals.
What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is often called “reorganization bankruptcy” because it involves a business reorganizing its debt. The debtor proposes a plan to pay creditors over time, which must be approved by the creditors and the court. Any type of business can file for Chapter 11 bankruptcy protection, including small business owners and large corporations. It allows them to continue operating and even use profits to pay creditors.
Filing for Chapter 11 bankruptcy can be an empowering decision. But the process is complex, and there’s little room for error when ,ending creditors’ collection efforts. An experienced attorney can help as this is the most complex type of bankruptcy. Your lawyer can not only help keep your business afloat. They can also take legal action if a creditor violates an automatic stay; they can face significant penalties for doing so.
Sometimes your lawyer can help avoid bankruptcy by creating a plan and negotiating with your creditors.
The Chapter 11 Bankruptcy Process
When filing for Chapter 11 bankruptcy, a business or high-net-worth individual must complete a few key steps. These involve a significant amount of paperwork that details your business and financial conditions and must be accurate and truthful. Your Chapter 11 bankruptcy attorney will work with you through the following stages of the process:
- Filing a Chapter 11 Bankruptcy Petition: Filing a bankruptcy petition begins your case. You must pay a filing fee. Usually, the person or business in debt will file the petition, but a creditor can force you to file for Chapter 11 bankruptcy if you default on paying your debts.
- Automatic Stay: An automatic stay goes into effect as soon as you file for bankruptcy. It prohibits creditors from taking collection actions or enforcing liens unless they receive permission from the court. The automatic stay gives you time to work out your repayment plan.
- Appointment of a Bankruptcy Trustee: Once you file for Chapter 11 bankruptcy, you become a debtor in possession. Oftentimes, the debtor in possession acts as their own bankruptcy trustee. But a trustee can be appointed by the court to propose a reorganization/repayment plan and oversee payment and reporting.
- Development of a Reorganization Plan: The reorganization plan is the backbone of a Chapter 11 bankruptcy. You can keep assets, repay debts over time, and sell some assets to meet debt obligations. Upon filing, a debtor in possession has 120 days to file their plan, but the court can extend this up to 18 months.
- Approval of the Reorganization Plan: The plan must be accepted by a majority of your creditors (representing at least two-thirds of your debt) and the court must agree you can make the monthly payments before accepting the plan. Creditors must receive more money than they would have under Chapter 7 bankruptcy, but a Chapter 11 reorganization plan is uniquely tailored to the debtor’s/creditor’s circumstances. However, any taxes owed must be paid within five years.
- Confirmation of the Reorganization Plan: If enough creditors approve of your plan, a confirmation hearing will take place. The court usually approves the plan if the creditors have accepted it and it meets legal requirements. You can then begin the repayment process.
- Emergence from Chapter 11 Bankruptcy: Once the repayment plan is implemented, you’ll make monthly payments until fulfilling your obligations. It can take several years to emerge from Chapter 11 bankruptcy. When sufficient funds have been dispersed to creditors or assets have been sold, your remaining debts may be discharged. You’ll no longer owe the remainder, and creditors can no longer try to collect it.
Advantages of Chapter 11 Bankruptcy
- Ability to restructure and reorganize a business
- Protection from creditors
- Ability to continue operations during the bankruptcy process
- Ability to reject burdensome contracts and leases
- Ability to sell assets and property free of liens and interests
- Emergency relief to pay wages/benefits, file and pay taxes, and meet contractual obligations
- Access to debtor-in-possession financing at favorable rates
Disadvantages of Chapter 11 Bankruptcy
- High cost of legal and administrative fees
- A lengthy and complex process
- Potential loss of control over the business (some decisions require court approval)
- Risk of creditor objections and challenges to the reorganization plan
- Burdensome financial recordkeeping and reporting requirements
- The reorganization must restore a business’s profitability
- The original shareholders may lose control
Eligibility for Chapter 11 Bankruptcy
Almost any entity or person eligible to file for Chapter 7 bankruptcy can file for Chapter 11 bankruptcy. A partnership, corporation, sole proprietorship, or an individual no longer in business may file. If you exceed the debt limits for Chapter 13 bankruptcy, you may be eligible to file for a Chapter 11 plan. However, stockbrokers or commodity brokers cannot file for Chapter 11 bankruptcy.
Chapter 11 bankruptcy for individuals or married couples filing jointly requires additional documents. The debtor must file a statement of monthly net income, evidence of payment received from employers within the past 60 days, a certificate of credit counseling, and a copy of any debt repayment plan developed through the counseling process. Increases in income or expenses after filing must be reported, as must any interests in federal or state education tuition programs.
Hire a Chapter 11 Bankruptcy Attorney
Chapter 11 bankruptcy can help businesses and individuals get back on their financial feet. An experienced lawyer can help create a plan, navigate every step of the process, and leverage the advantages of filing for Chapter 11 bankruptcy. Your legal advisor can assist in determining what assets you can use to pay off debts and how much you can afford to pay monthly to complete your bankruptcy case as quickly as possible. They can also prevent creditors from taking collection actions against you once an automatic stay goes into effect.
Contact OakTree Law Today
We have experienced Los Angeles bankruptcy lawyers who can help your business through any financial situation. Chapter 11 bankruptcy is complex, but our team can streamline the process. A+ rated by the Better Business Bureau and recognized by many top legal organizations, our firm is committed to putting our clients’ needs first. Contact us or call (800) 535-1627 to learn if you are eligible and receive help filing your Chapter 11 bankruptcy petition.