Chapter 11 Bankruptcy in New York

In July 2010, crain’s new york business.com reported a Manhattan-based tour operator, Travel Span, filed Chapter 11 bankruptcy protection, listing more than $7.1 million in debt. Travel Span booked discounted vacation packages, and airline tickets to the Caribbean, India, and Europe. It had offices in Queens and Brooklyn. Travel Span’s bankruptcy filing listed hotels, landlords, airports, and employees or agents as creditors.

Everyone reads about Chapter 11 bankruptcy filings in news. Chapter 11 of the Bankruptcy Code generally referred to as “reorganization” bankruptcy usually involves a business. A Chapter 11 debtor proposes a reorganization plan to keep a business going and pay off creditors over time.

A business may be in the form of a corporation, sole proprietorship, or partnership. For a sole proprietor, the owner and the business are one and the same. The owner is personally liable for all of the business’s debts if there are no business assets. A bankruptcy case involving a sole proprietorship involves both the business and personal assets of the owners-debtors. A partnership is two or more individuals associating as co-owners of a business for profit. General partners in a general partnership have personal liability similar to a sole proprietor for business debts. Limited partners lose up to the capital they put in. A corporation exists separate from its owners, the stockholders. If a business is organized as a corporation, a shareholder’s personal assets are generally protected from business creditors, unless the shareholder signs a personal guarantee.

Individuals, such as those who own small businesses in New York, may seek relief in Chapter 11 also. No individual may be a debtor under Chapter 11 or any chapter of the Bankruptcy Code unless the person has, within 180 days before filing, received credit counseling from an approved credit counseling agency.

A Chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile. A corporation may be domiciled in either its state of incorporation or where it has a principal place of business. An individual is domiciled where s/he intends to stay.

A chapter 11 petition may be a voluntary petition, which is filed by the debtor. There are official forms for filing bankruptcy petitions downloadable at www.uscourts.gov/bkforms/index.html. A debtor can view court calendars ahead of time to find out the line number and order in which a case will be called when there is a hearing.

A debtor in New York should engage an experienced bankruptcy attorney to determine if filing Chapter 11 is the proper route in taking care of business debts.