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CHAPTER 11 BANKRUPTCY

If you are an individual or a sole proprietor, make sure to also check out the information for Chapter 7 and 13

Chapter 11 of the bankruptcy code is a "reorganization" and is primarily for corporations and partnerships, or for individuals with large debts and assets who do not meet the strict asset/debt limitations of Chapter 13. Chapter 11 offers greater flexibility and options than other chapters and can be extremely useful even in lower debt cases. It is very useful in real estate cases where you are trying to find ways to catch up on past due payments, or buy some time for selling a piece of property that has equity, or for dealing with delinquent taxes, or any scenario where you need time to catch up on payments, but keep your business running.

WHY CHAPTER 11?

Chapter 11 is unique in that the Debtor remains in possession of all his assets and his ongoing business. In other words, the Debtor itself (or himself or herself) is the Trustee for the estate. While this is a great advantage, it does not come without its costs.

There are great powers afforded to Chapter 11 Debtors, such as the ability to object to your creditors' claims, avoid liens, reject leases and contracts with no penalty, extend the time for repayment to your existing creditors or even reduce the amount owed or paid to them.

Often there is litigation associated with any Chapter 11 case, either with the Debtor attacking the creditors, or vice versa.

SOME OF THE HARD FACTS

Chapter 11 can be quite expensive and is always time consuming. There are constant administrative burdens which must be met. Regular reports must be filed with the court and the U.S. Trustee's Office, and fees must be paid. Since Chapter 11 cases can last from several months to several years, the professional fees (attorney, accountant, C.P.A.) can grow quite rapidly. The court filing fee is currently $830.00.

THE KEY

The key to a successful Chapter 11 case is pre-bankruptcy planning. Very few Chapter 11 cases are successful when the Debtor arrives at the attorney's office needing to file the petition immediately. This is true with any chapter of the bankruptcy code, but is particularly true in a chapter 11. Why? Because the administrative burdens, time constraints, financial pressures, and other problems are so great, that a failure to plan ahead, and prepare as much documentation as possible prior to filing, will usually spell disaster. All you will end up doing is paying your attorney several thousand dollars for a few months' breathing room, only to end up where you were to begin with.

THE PLAN:

The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization (repayment) confirmed by the court. This is by no means a simple task and the requirements for doing this are rather complex and will not be discussed here. The Plan is basically a contract with one's creditors as to how they will be repaid, and from what source. There are many ways to formulate a Plan, subject to the requirements and limitations of the Bankruptcy Code, and the more skilled attorneys will explore all avenues to improve your business and financial position.

If you have Adobe Acrobat Reader, click here 
for "official" information on Chapter 11 
provided by the U.S. Trustee's Office.