Chapter 11 which is reorganization, typically involves a corporation or partnership, which is facilitated by the Bankruptcy Code. In order to continue operations and make payments to creditors, a chapter 11 debtor will often present a plan of reorganization. Chapter 11 is available for both businesses and individuals. The bankruptcy lawyers help in assessing for filling a case under chapter 11
How Chapter 11 (Reorganization Bankruptcy) Works?
The first step in a chapter 11 case is to file a petition with the bankruptcy court that serves the area where the debtor lives or has their main place of business. A petition can be either voluntary, which is filed by the debtor, or involuntary, which is filed by creditors who meet certain criteria. The Judicial Conference of the United States says that a voluntary petition must be written in the way that Form B 101 of the Official Forms says it should be. Unless told otherwise by the court, the debtor must also file with the court:
Schedules of assets and liabilities, current income and expenses, contracts and leases that are still active are a statement of financial affairs. If the debtor is a single person or a married couple filing jointly, they need to spend extra paperwork.
Such debtors must file a certificate of credit counseling and a copy of any debt repayment plan made through counseling, proof of payment from employers received 60 days before filing, a statement of monthly net income and any expected increases in income or expenses after filing, and a record of any interest in federal or state qualified education or tuition accounts. A married couple can file one petition together or two separate ones.
A person can’t file under chapter 11 or any other chapter if, in the last 180 days, a previous bankruptcy petition was thrown out because the debtor didn’t show up to court.. Also, no one can be a debtor under Chapter 11 of the Bankruptcy Code unless he or she has received credit counseling from an approved credit counseling agency at least 180 days before filing.
There are some exceptions, such as when there is an emergency or when the U.S. trustee (or bankruptcy administrator) decides that there aren’t enough approved agencies to provide the necessary counseling. During the required credit counseling, if a plan for how to pay off debt is made, it must be filed with the court.
Requirements for Chapter 11 Bankruptcy
Chapter 11, which is often called the “reorganization chapter,” lets businesses, partnerships, and individuals reorganize without having to sell all of their assets. When a debtor files for Chapter 11, he or she gives the creditors a plan that, if accepted by the creditors and approved by the Court, will allow the debtor to reorganize his or her personal, financial, or business affairs and start making money again.
Requirements prior to filing under chapter 11 are as follows:-
- To avoid having to file the certificate of credit counseling, a debtor must submit a different certificate that says there were urgent circumstances that made it necessary to waive the requirement. That the debtor asked for credit counseling but couldn’t get it in the 7 days before filing; OR
- Request in writing and let the debtor know that they can’t get credit counseling because they are sick, disabled, or serving in the military in a combat zone.
- Involuntary petition filing requirement essentials
- Needed Documents at the Time of Filing (Minimum Filing Requirements)
- Documents that must be submitted with the voluntary petition or within 14 days of filing.
- Documents that must be submitted within 120 days of filing.
Advantages and Disadvantages of Filing Chapter 11
- Your business will still be able to run. With a reorganization plan, your business can keep running even as it starts to pay back its debts.
- Your creditors won’t bother you any more. The automatic stay will give you a much-needed break from calls so you can work on a plan.
- You can renegotiate certain debts. As part of your plan to reorganize your business, you may try to renegotiate leases, contracts, and other types of agreements.
- You can do better next time. Your business can get a fresh start with more time, the chance to get out of some debts and contracts, and other things.
- Chapter 11 bankruptcy is the hardest type of bankruptcy to deal with
- It is also often the most expensive way to file for bankruptcy. For a company that is having so much trouble that it is thinking about going bankrupt, the legal fees might be hard to handle on their own.
- Also, the bankruptcy court has to agree to the reorganization plan, and it has to be simple enough that they can pay off their debts over time. Because of these things, a company should only think about Chapter 11 reorganization after it has carefully thought about and tried all of its other options.
When the company’s financial problems seem impossible to solve, filing for bankruptcy may be both the relief you need and the decisive step you need. Chapter 11 bankruptcy can help a lot of businesses, especially if you want to fix up your business and keep going instead of shutting it down. During a Chapter 11 proceeding, the court will help a business reorganize its debts and obligations. Most of the time, the business stays open and keeps running. A lot of big companies in the United States file for Chapter 11 bankruptcy and stay in business.