Chapter 11 bankruptcy is used to reorganize a business because there are no limits on the debt. The Chapter 11 debtor proposes a plan to reorganize finances to keep a business afloat.
Corporations, partnerships, limited liability companies, business trusts, unincorporated associations, and individuals who own businesses, such as landlords with several rental properties, are eligible to file bankruptcy under Chapter 11.
When thinking about filing Chapter 11, look for an experienced New York attorney who strives to help the debtor maintain possession of all assets and design a reasonable repayment plan. In Chapter 11, the repayment plan is crucial to the reorganization of the business. An experienced bankruptcy attorney works with the debtor to evaluate the market financial climate and requirements to keep the business operating, such as future ambitions and liabilities.
In a Chapter 11, the debtor often remains in control of all assets until the court confirms the reorganization plan. The debtor becomes the “debtor in possession”. The debtor acts as the trustee of the bankruptcy estate. The debtor must disclose all information relating to assets, liabilities, and business affairs in the bankruptcy petition. The disclosure is necessary to let creditors make an informed decision about the proposed repayment plan.
The U.S. trustee observes the Chapter 11 case proceedings to ensure all proper information is divulged, and requests for compensation for administration and creditors. A creditor’s committee is usually appointed by the U.S. trustee and made up of unsecured creditors that are not affiliated with the debtor. The committee works directly with the debtor in possession to formulate a plan.
Different rules apply to a small business debtor under Chapter 11. To qualify for a small business debtor status, the debtor must participate in commercial activities, have debt totaling less than $2,190,000, and the U.S. trustee has not appointed a creditor’s committee, or the court deemed the committee insufficiently active.
Confirmation of a plan discharges a debtor from debt before the date of confirmation. After the court confirms the plan, the debtor pays off the creditors according to the plan. The confirmed plan creates contractual rights, superseding pre-bankruptcy petition filing contracts, discharging any debts not under the plan.
When debts are not discharged, the debtor continues to be liable to the extent that they are not paid in the Chapter 11. Post-confirmation, the proponent of a plan may modify the plan for changes in circumstances. Examples of these events include being hit by a car or cancer or loss of employment, leading to inability to make plan payments. There is a hearing for the court to confirm the plan as modified.
When determining whether to file under Chapter 11, consult with an experienced New York bankruptcy attorney.