Chapter 11

Overview: Chapter 11 Bankruptcy

Bankruptcy under Chapter 11 is frequently referred to as a "reorganization" bankruptcy. It is utilized primarily by businesses (corporations, sole proprietorships, partnerships, and other entities) that want to restructure their debts so that they can continue business operations. While liquidating plans are permissible, and may be more economically advantageous for debtors and creditors than liquidation under Chapter 7, in most cases the Chapter 11 debtor proposes a plan in which the debtor can continue to operate the business and, at the same time, repay creditors from future income.

If you are contemplating filing Chapter 11 bankruptcy and in need of restructuring your business debt, contact Scupp & Berman, LLP to schedule a FREE consultation to learn more about Chapter 11.

Phases of a Chapter 11 Case

The key to a successful Chapter 11 bankruptcy is the continued successful operation of the debtor's business.  In conjunction with the debtor, the court and creditors are generally required to make decisions at every stage of the case to keep the business running. The basic phases of a Chapter 11 case are:

• Commencement: In this phase, a Petition is filed, creditors are notified and organized, and "first day orders" are rendered.
• Operation of the business. In a Chapter 11 case, business operations must continue. In addition to running the business, the debtor (who remains “in possession”) or the trustee must fulfill additional duties required under the Bankruptcy Code and work with creditors, the court, and other parties to obtain financing for ongoing business operations.
• Plan preparation. For a period of time after the petition is filed, a Chapter 11 debtor has the exclusive right to prepare and file a plan to repay its debts with the court. After the debtor's exclusivity period has expired, the trustee (if one has been appointed) and creditors may also file a plan with the court.
• Plan acceptance. Before a plan may be confirmed by the court and become binding on the debtor, creditors, and equity security holders, it must be submitted to creditors and equity security holders for approval by a vote.
• Plan confirmation. In general, after a plan is accepted by the required number of classes of claims and interests, the court will hold a confirmation hearing to determine whether the plan should be confirmed. A plan which has been confirmed by the court is binding on the debtor, creditors, and shareholders and generally operates as a discharge.

Problems in Chapter 11 Cases  

Problems in a Chapter 11 bankruptcy usually pertain to issues regarding how much a particular creditor(s) will receive under the debtor’s proposed plan. These disputes may be (i) among creditors regarding priority and amount of claims under the plan; or (ii) between creditors and stockholders / owners regarding how much property a debtor will be allowed to retain. Certain disputes may also involve the use, sale, and lease of encumbered property, adequate protection, avoidable transfers, the assumption or rejection of executory (unfulfilled) contracts and unexpired leases, and may even be in the form of adversary proceedings necessitating judicial intervention.

For more information about filing a Chapter 11 petition, operating a business during Chapter 11 or any other issues related to Chapter 11 bankruptcy, contact Scupp & Berman, LLP to schedule a FREE consultation.