Chapter 11 FAQs
When individuals or small businesses are struggling and overwhelmed by debt, one option that can help them find their way back to solvency is to file for Chapter 11 bankruptcy protection.
By using this legal tool, debtors gain valuable time to plan a way out of insolvency and get some relief from crushing debts. However, Chapter 11 proceedings can be time-consuming and expensive, and a Chapter 11 bankruptcy filing is not always the best choice.
If you are considering filing for Chapter 11 bankruptcy protection, or if you have questions about what it means for your personal finances or the life of your business, contact the veteran bankruptcy attorneys at Sasser Law Firm today.
Bankruptcy is all our firm does. Our Chapter 11 bankruptcy attorneys have helped more than 9,000 people and businesses across North Carolina with bankruptcy filings.
We have three board-certified bankruptcy specialist attorneys on staff to handle the hardest, most complicated cases. Furthermore, you will never be passed off to a paralegal when you work with our firm. You will work directly with one of our professional bankruptcy lawyers.
What Is Chapter 11 Bankruptcy Protection?
A person or business can choose several different ways to file for bankruptcy. Chapter 11 gets its name from the section of the U.S. Code that concerns bankruptcy proceedings.
There are multiple kinds of bankruptcy proceedings besides Chapter 11, including Chapter 7 and Chapter 13 bankruptcy protection. (In addition to Chapter 11 cases, our firm can also handle your Chapter 7 or Chapter 13 bankruptcy case.)
What separates Chapter 11 bankruptcy protection from other bankruptcy protections is that it’s designed primarily for use by businesses instead of individuals.
That said, certain people with a lot of wealth may decide they want to file for Chapter 11 bankruptcy protection instead of Chapter 7 or Chapter 13, depending on their specific circumstances.
When a person or business files for Chapter 11 bankruptcy protection, they get a breathing period during which their creditors cannot take any action against them.
Filing for Chapter 11 bankruptcy protection also gives the filer day-to-day control over their business and finances while working to find a better way forward.
The bankruptcy court must approve certain actions while a business is working its way through a Chapter 11 case, such as entering into or breaking a lease, or shutting down or expanding business operations.
During Chapter 11 proceedings, the filer gets a chance to work with their creditors and find alternative means of resolving their debt. Potential options to make debts more manageable include having the interest rate on loans reduced, giving the filer more time to repay the loans, and having the principal balance on outstanding loans reduced.
As the bankruptcy case works its way through the courts, the filer will put together a plan of reorganization to pay back their creditors using what assets they still have.
Once this plan is completed, it is submitted to the filer’s creditors, who have a chance to approve or reject the plan. If the plan is rejected, it can still be approved anyway by the bankruptcy court overseeing the case, if the court deems the plan sufficient to pay back creditors.
Once the plan is approved by either creditors or the courts, the courts will discharge the filer’s debts according to the terms of the agreed-upon plan.
Who Can File Chapter 11 Bankruptcy?
In most cases, businesses file for Chapter 11 bankruptcy while individuals file for either Chapter 7 or Chapter 13. However, Chapter 11 bankruptcy is still available to individuals, these proceedings sometimes fall under Chapter 11, Subchapter V.
The main reason businesses, rather than individuals, choose Chapter 11 bankruptcy protection is that Chapter 11 is the most complex and time-consuming form of filing for bankruptcy. While some of these cases can be resolved in a matter of months, sometimes, it can take years to resolve a complicated Chapter 11 bankruptcy case.
Strictly speaking, however, Chapter 11 is open to everyone, and there is no debt limit for those who choose to file. This is in contrast to Chapter 13 bankruptcy, which is limited to individuals with stable incomes and has certain debt limits. In a Chapter 13 case, a trustee is appointed, which does not happen in most Chapter 11 cases.
One limit on filing for Chapter 11 bankruptcy is if the person or entity filing for bankruptcy has had a prior filing dismissed within the past 180 days for failing to appear at court, ignoring a court order.
A person or entity also cannot file for Chapter 11 if they have had a previous filing voluntarily dismissed within the past 180 days because their creditors filed their own petition to recover property upon which they had liens.
What Does Reorganization Mean in a Chapter 11 Bankruptcy?
Unlike a Chapter 7 bankruptcy filing, in which a person’s or business’ assets are liquidated (meaning sold to pay creditors), a Chapter 11 bankruptcy filing gives the filer a chance to come up with a new plan to move forward while still paying back creditors some of what they are owed. This is what’s known as a reorganization.
For businesses, a reorganization generally entails adjustins operations or selling some assets. The idea is that by reducing their debts and shedding some of their assets, the business gets another opportunity to succeed, which means creditors are more likely to get what they’re owed than if the business had simply been liquidated.
Do I Need a Lawyer to File Chapter 11 Bankruptcy?
For individuals (Business entities must be represented by an attorney) technically, you do not need a lawyer to file for Chapter 11 bankruptcy. However, doing so without help from an attorney, specifically one with a background in bankruptcy cases, is not a good idea.
To get to the initial filing stage, you’ll need to gather numerous documents and present them to the bankruptcy court. You’ll then need to put together a plan.
This plan will generally need to be approved by your creditors. If you do not put together an adequate plan in time, they can put forward their own proposal. If you need more time, you will need to go to the bankruptcy court, and they do not necessarily have to grant your request.
This is a lot of legal legwork to do while you are still trying to run a business. Filing for Chapter 11 bankruptcy also comes with certain expenses. It is in your financial interest to resolve the case as soon as possible. A bankruptcy attorney can help you put together a plan that will hopefully be acceptable to your creditors while you focus on keeping your business afloat.
Getting help from a bankruptcy lawyer will also help you wrap up the case more quickly, which can lower your expenses. For these reasons and others, you should get help from a lawyer when filing for Chapter 11 bankruptcy.
Can a Company Survive Chapter 11 Bankruptcy?
Many companies have emerged from Chapter 11 bankruptcy in a more stable financial position and gone on to thrive. This is because Chapter 11 is generally used by companies that are struggling and have significant debt, but could still succeed if those debts were eased.
Companies that are beyond salvaging and over-leveraged generally file for Chapter 7 bankruptcy and liquidate their assets.
A few notable companies that have used Chapter 11 and emerged with lower debts include General Motors, Marvel Comics, Six Flags theme parks, and Texaco.
Does Chapter 11 Wipe Out Debt?
Filing for Chapter 11 bankruptcy will generally result in the discharge of some debts, but not all of them. The exact amount will depend on the plan you work out with your creditors and will vary based upon things like how much you owe, what assets you have, if you have previously filed for bankruptcy, etc.
What Is “Pre-Packaged Bankruptcy”?
A pre-packaged bankruptcy is a plan that a business negotiates with its creditors before initially filing for Chapter 11 bankruptcy protection. By negotiating the plan ahead of time, the business can save a great deal of time and money while still offering a way forward to the lenders it owes money to. Pre-packaged bankruptcy plans must be approved by shareholders before the company files for bankruptcy.
Have individual questions about Chapter 11 bankruptcy? Sasser Law Firm would be happy to answer them. Call us today or visit our contact page for a free case review.