Chapter 11 Bankruptcy

What is Chapter 11?
Chapter 11 of the Bankruptcy Code generally applies to a corporation, partnership, or an individual who does not qualify for either a Chapter 7 or Chapter 13 bankruptcy.  A Chapter 11 debtor usually proposes a plan of reorganization to keep his/her business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11. Generally, an individual who does not qualify for a Chapter 7 or a Chapter 13 bankruptcy, due to income constraints, will be forced to file a Chapter 11 bankruptcy. When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

How long can does it take to file for Chapter 11?
The process involved with Chapter 11 business bankruptcy is far more complicated than either Chapter 7 or Chapter 13 personal bankruptcies. In fact, your business will generally be involved in the process for five years which involves filing statements with the US Trustees Office and making quarterly payments.

How does Chapter 11 benefit a business?
Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the U.S. It provides additional tools for debtors as well. Most importantly, 11 U.S.C. § 1108 empowers the trustee to operate the debtor’s business. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business. Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business’ earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.

The Chapter 11 usually results in reorganization of the debtor’s business or personal assets and debts, but can also be used as a mechanism for liquidation. Debtors may emerge from a Chapter 11 bankruptcy within a few months or within several years, depending on the size and complexity of the bankruptcy. The Bankruptcy Code accomplishes this objective through the use of a bankruptcy plan. With some exceptions, the plan may be proposed by any party in interest. Interested creditors then vote for a plan.

What are the risks of filing for Chapter 11?
If the business’s debts exceed its assets, the bankruptcy restructuring results in the company’s owners being left with nothing; instead, the owners’ rights and interests are ended and the company’s creditors are left with ownership of the newly reorganized company. All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed plan of reorganization complies with the bankruptcy law.

How does Integrity Law Group Help?
Integrity Law Group, PLLC represents both business and individual debtors in Chapter 11 proceedings, providing pre-filing counseling and planning, general representation in the Chapter 11 case, and the full range of related post-petition services. We believe that a successful Chapter 11 requires a partnership between the client, its legal professionals, and its financial professionals. We will walk you through the process step-by-step and work closely with your existing professional accountants, book keepers, in house counsel, or other individuals that hold an interest in your business to reorganize the debtor, or to satisfactorily resolve the Chapter 11.