Everyone hears about huge corporations filing Chapter 11 bankruptcy filings in news:
• In 2012, Eastman Kodak Co. prepared for Chapter 11 bankruptcy.
• In 2011, there were headlines on Chapter 11 for Borders Group Inc., the famous bookseller. People drove to Borders to study or coffee only to find their favorite stores shut down.
• In 2010, Personality Hotels III LLC, the owner of Hotel Frank and Vertigo Hotel, and Hotel Metropolis II LLC, the owner of Metropolis Hotel, filed bankruptcy petitions in California.
Chapter 11 of the Bankruptcy Code generally referred to as “reorganization” typically is used to reorganize a business, which may be 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 debts. When business assets are not enough to pay for business debts, the creditors can go after the personal assets. For example, if a business ends up with a lawsuit judgment, the owner of the business could end up paying for the judgment out of personal property, such as a house.
Individuals, such as those who own apartments in New York may seek relief in Chapter 11 also. Before filing a petition the debtor needs to take a credit counseling course from an approved credit counseling agency, except when a US trustee decides there is an emergency situation or there are not enough approved agencies to provide the counseling.
A Chapter 11 petition may be voluntary, which the debtor files out of the debtor’s own volition, or it may be involuntary, when creditors file. There are official forms for filing bankruptcy downloadable at www.uscourts.gov/bkforms/index.html.
Along with the petition, a New York debtor files with the court schedules and statements on:
• current income and expenditures;
• executory contracts and unexpired leases;
• assets and liabilities;
• financial affairs.
The petition is public. The petition includes the debtor’s name(s), social security number or tax identification number, address, location of principal assets if a business, debtor’s reorganization plan or intention to file a plan, and a request for relief under Chapter 11.
A debtor needs to ensure all required documents are filed with the court, and to answer all of a bankruptcy trustee’s questions. A case may be dismissed for not filing a reorganization plan or answering a trustee’s questions. Bankruptcy judges are usually no nonsense, and do not hesitate to dismiss cases when a debtor does not follow court procedures. For instance, a judge looks lowly on a debtor who files Chapter 11 to take advantage of the automatic stay, knowing the debtor does not have funds to payoff debts according to a plan.
Get advice from an experienced New York business attorney with bankruptcy experience before filing bankruptcy. Chapter 11 bankruptcy may stay on a credit report for up to ten years, and make it hard for an individual to obtain credit or a business owner to open another business.