Filing Chapter 11 Bankruptcy – Lawyers in Detroit, Southfield
Chapter 11 Bankruptcy: “Business Reorganization”
Chapter 11 of the Bankruptcy Code provides for reorganization of a business’s debt. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals in certain business related situations can also seek relief in Chapter 11.
Chapter 11 is typically used to reorganize a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the stockholders. A Chapter 11 Bankruptcy does not put the personal assets of the stockholders at risk. A sole proprietorship Chapter 11 bankruptcy, on the other hand, includes both the business and personal assets of the owners-debtors. Like a corporation, a partnership exists separate and apart from its partners. However, in a partnership Chapter 11, the partners’ personal assets may, in some cases, be used to pay creditors – or the partners themselves may also be forced to file.
Eligibility for Chapter 11 Bankruptcy– Lawyers in Detroit, Southfield
An individual cannot file under Chapter 11 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition, no individual may be a debtor under Chapter 11 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.
How Chapter 11 Bankruptcy Works – Lawyers in Detroit, Southfield
A Chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements.
Unless the court orders otherwise, the debtor also must file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs.
If the debtor is an individual (or husband and wife), there are additional document filing requirements. Such debtors must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts.
Generally, a written disclosure statement and a plan of reorganization must be filed with the court. The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization. The information required is governed by judicial discretion and the circumstances of the case. In a “small business case” the debtor may not need to file a separate disclosure statement if the court determines that adequate information is contained in the plan. The contents of the plan must include a classification of claims and must specify how each class of claims will be treated under the plan.
The U.S. Trustee or Bankruptcy Administrator
The U.S. trustee is responsible for monitoring the debtor in possession’s operation of the business and the submission of operating reports and fees. Additionally, the U.S. trustee monitors applications for compensation and reimbursement by professionals, plans and disclosure statements filed with the court, and creditors’ committees. The U.S. trustee conducts a meeting of the creditors, often referred to as the “section 341 meeting,” in a chapter 11 case.
The U.S. trustee also imposes certain requirements on the debtor in possession concerning matters such as reporting its monthly income and operating expenses, establishing new bank accounts, and paying current employee withholding and other taxes. By law, the debtor in possession must pay a quarterly fee to the U.S. trustee for each quarter of a year until the case is converted or dismissed.
Creditors’ Committees in Chapter 11 Bankruptcy – Lawyers in Detroit, Southfield
Creditors’ committees can play a major role in chapter 11 cases. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor.
The Final Decree in Chapter 11 Bankruptcy – Lawyers in Detroit, Southfield
A final decree closing the case must be entered after the estate has been “fully administered.” Local bankruptcy court policies generally determine when the final decree is entered and the case closed.
Because of the complexity of Chapter 11 bankruptcy law, only an experienced and qualified attorney can fully explain how these provisions and requirements of Chapter 11 apply to your situation.
The best way to determine whether filing a Chapter 11 Bankruptcy is right for your business entity is to consult with a qualified business bankruptcy attorney. Many Bankruptcy alawyers have handled hundreds of personal bankruptcy cases, but very few bankruptyc law firms have hundled hundreds of Chapter 11 bankruptcies, like we have. Our experienced bankruptcy attorneys have the knowledge and the skill to get the best possible results in your business bankruptcy or debt related issue.