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How To File Bankruptcy Chapter 11

Bankruptcy Can End With A Brand Relaunch Under New Management

PG& E to file for Chapter 11 bankruptcy, CEO resigns

Weve seen a number of retailers go bankrupt and relaunch under new management in the past few years. When American Apparel filed for bankruptcy in the fall of 2016, closing all of its stores, Gildan Activewear bought its intellectual property and relaunched it with some tweaks to its infamous marketing style. Nasty Gal was acquired out of bankruptcy by the British fast fashion brand Boohoo in February 2017, though its resuscitation came with complaints of poor customer service.

Gildan and Boohoo bought American Apparel and Nasty Gals names but none of their existing operations, supply chains, or debt. In essence, the brands looked much the same if less risqué, in the case of American Apparel but under the hood, they were totally different. At its clumsiest, this can create a sort of zombie effect, where things just seem off.

Its a tough road, though. Ramez Toubassy, the president of brands at Gordon Brothers, describes the valuation of a bankrupt brands intellectual property as an art and a science. Gordon Brothers is best known as a liquidator, but Toubassy led its of Wet Seals brand name after the mall retailer shut down all of its stores and filed for Chapter 11 bankruptcy protection earlier that year.

Its not uncommon for a brand to stumble and file for bankruptcy again what those in the business jokingly call a Chapter 22

I would say if youre not back up and running with e-commerce in six months, youd better have a good reason, Toubassy says.

How Long Does Chapter 11 Take

Because it is complicated, what with disclosures and committees and hearings and special accounts and audits and votes and, sometimes, refinancing and oversight by the U.S. Trustees Office, Chapter 11 is not only labor-intensive, it can be extremely time consuming.

In theory, Aaron says, a company could be in and out of bankruptcy in 30-45 days. Others, he says, drag on for years, weighed down by pre-existing litigation and other potential complications, such as whether the company is a single-asset entity say a real estate partnership with a lone shopping center thats hit a tough patch.

However, there is no limit on completing the repayment plan under Chapter 11. Most take from six months to two years to complete.

Just coming up with a reorganization plan can take time. The business or individual is allowed four months to come up with a plan, and it can be extended to 18 months.

What Happens When We Declare Bankruptcy

If you are filing under Chapter 7, a bankruptcy trustee will be assigned to your case, and he or she will then go about attempting to liquidate your personal assets in order to make repayment to your creditors. Fortunately, an attorney from our team can help you claim any available exemptions under Florida law, and you may lose little or nothing of your personal estate.

In a Chapter 13 case, the lawyer has the job of helping you to develop a plan of repayment. Depending on your financial circumstances, you will be continuing to repay your debts for a period of either three or five years. Fortunately, you will no longer have to keep track of multiple due dates and minimum payments. Instead, your existing debts will be lumped into a single payment, the amount of which is calculated to be within your means. Your lawyer can assist you by helping design a plan that keeps the payment amount to an absolute minimum.

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Chapter 11 For Small Businesses

Chapter 11 bankruptcy reorganization is commonly associated with larger corporations, but it is available to qualifying small businesses.

A “small business” is one with fewer than 500 employees, as defined by the Small Business Administration. Small businesses make up most of the Chapter 11 filings. But they don’t always remain in Chapter 11.

Small business Chapter 11 bankruptcies often get dismissed and converted to Chapter 7. This typically happens because the court decides the business has little or no chance of becoming profitable. Partnerships, which have very few bankruptcy options, may file for Chapter 11 if the business entity has a chance of surviving and profiting on its own.

According to the U.S. Bankruptcy Code, a “small business debtor” is an individual engaged in business activities with total debts of $2,725,625 or less at the time of the petition.

Note: The COVID-19 pandemic CARES Act raises this debt limit to $7.5 million.

Chapter 11 Vs Chapter 13

Filing Chapter 11 Bankruptcy  How it Works &  Who Can File

Both allow businesses to continue operating under reorganization plans. But as stated earlier, your bills cant exceed $1,184,200 in secured debt and $394,725 in unsecured debt in order to qualify for a Chapter 13.

That doesnt mean you have to file a Chapter 13 if your debts are lower than those thresholds. But most businesses choose Chapter 13 since it is simpler and less expensive.

Unlike Chapter 11, a trustee is always appointed in a Chapter 13 case. He or she reviews the proposed reorganization plan and makes recommendations to the court on how to proceed.

The trustee also collects the payments and distributes them to creditors. If the debtor fails to meet the repayment requirements, the trustee can ask the court to dismiss the case or convert it to a Chapter 7 liquidation.

The approval process is less complicated than a Chapter 11, since creditors dont get to vote on the reorganization plan. Chapter 13 cases usually take three to five years to complete.

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Emergency Relief For Operations

Within a few days of a Chapter 11 bankruptcy filing, the bankruptcy court will schedule an expedited hearing to hear emergency motions relating to the business and its bankruptcy. This hearing represents an opportunity for the business to ask the court for the authority to undertake certain actions to continue the normal course of the businesss operations, such as continuing to pay wages and benefits to employees, filing and paying taxes, or meeting certain contractual obligations like rent, insurance premiums, or vendor invoices.

A company in Chapter 11 bankruptcy can obtain emergency relief to continue regular operations, which can give employees, vendors, and customers peace of mind that the bankruptcy will not severely disrupt the businesss operations. This is especially important for small business owners who typically operate on a month-by-month basis.

Revocation Of The Confirmation Order

Revocation of the confirmation order is an undoing or cancellation of the confirmation of a plan. A request for revocation of confirmation, if made at all, must be made by a party in interest within 180 days of confirmation. The court, after notice and hearing, may revoke a confirmation order “if and only if the order was procured by fraud.” 11 U.S.C. § 1144.

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How Is Property Handled In A Chapter 7 Vs Chapter 11 Case

A Chapter 7 case is a liquidation bankruptcy. Debtors who have non-exempt equity in property may lose that property in a Chapter 7 vs. Chapter 11 case.

Most Chapter 7 cases filed by individuals are no-asset cases. No-asset cases mean the debtors keep all assets, but get rid of substantial debts.

A business that files Chapter 7 vs. Chapter 11 closes its doors. The trustee sells the business assets to pay unsecured creditors in a Chapter 7 case. Secured creditors repossess or foreclose on the collateral, including real estate. Unsecured claims are paid in order of the priorities set by the U.S. Bankruptcy Code.

In a Chapter 11 case, the debtor chooses whether to keep or surrender property to the secured creditor holding the lien. A lien is a security interest that gives the creditor the ability to take property back if the debt is getting paid, either through a repossession or foreclosure. The property with the lien on it is called the collateral. If the property does not have a lien and it does not serve as collateral for a secured debt, the debtor is generally able to keep all property.

Can I Lose Property in a Chapter 7 vs. Chapter 11 Case?

Each bankruptcy case is different. However, most people who file a Chapter 7 case don’t lose any property because everything they own is protected by an exemption. As a result, debtors in Chapter 7 bankruptcy don’t pay back any unsecured creditors as part of their bankruptcy case.

How Do I Pay Creditors Back In A Chapter 7 Vs Chapter 11 Case

PG& E preparing a Chapter 11 bankruptcy protection filing

Debts are handled differently in Chapter 7 vs. Chapter 11 cases. Debtors in Chapter 7 cases do not pay creditors back. If the bankruptcy trustee sells property as part of the administration of the case, unsecured creditors receive a share of the money. Debtors in Chapter 11 cases pay back different classes of creditors in different ways through a bankruptcy plan. The Debtor routinely makes regular payments to creditors after filing a Chapter 11 bankruptcy proceeding.

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Single Asset Real Estate Debtors

Small business owners of real estate can also file for Chapter 11. Typically this includes office buildings, warehouses, and shopping centers.

This is called “single asset real estate cases” under Chapter 11. It involves debtors with:

  • Non-residential property
  • Less than four residential units that generate nearly all of the debtor’s income

Those whose primary business is owning and operating real property are not eligible.

Do I Have To Attend A Court Hearing In A Chapter 7 Vs Chapter 11 Case

Debtors must attend a meeting of creditors in each bankruptcy case regardless of filing under Chapter 7 vs. Chapter 11. However, Chapter 7 cases usually don’t have any other court hearings, unless the individual debtor is reaffirming a car loan.

There are numerous court hearings a debtor attends in a Chapter 11 bankruptcy case.

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Chapter 11 Business Bankruptcy

The debtor continues to operate the business, though the bankruptcy court must approve major decisions. It can also appoint a trustee to take over if it finds sufficient cause, like fraud, dishonesty or incompetence.

Some of the biggest companies in America have filed for Chapter 11. Heading that list is General Motors, which filed in 2009.

It sold companies subsidiaries like Saturn, Hummer and Saab. It also got a $51 billion bailout from the U.S. Treasury which ended up costing taxpayers about $12 billion after all the smoke cleared.

Galesburg Cottage Clinic To File For Bankruptcy Intends To Remain Open Through Process

How Long Does It Take To File Bankruptcy Chapter 11

GALESBURG Knox Clinic Corporation in Galesburg will file for Chapter 11 bankruptcy, according to a letter employees Tuesday afternoon.

The clinics at 834 N Seminary St. are connected to Galesburg Cottage Hospital, which lost its accreditation and was notified in December about losing Medicare and Medicaid payments.

More: What’s next for Cottage Hospital? Can the longtime hospital stay open without Medicare, Medicaid funding?

A letter from Cottage Hospital CEO Sanjay Sharma told employees the clinics, not the hospital, will file for Chapter 11 bankruptcy, which will allow it to reorganize and preserve services.

“It has become necessary, considering recent developments, for clinics to file for Chapter 11 bankruptcy. What this will allow us to do is reorganize the clinics and emerge safely to preserve the services we can,” the letter from Sharma said.

“The plan is to continue to operate the clinics during bankruptcy. We intend to come out of this process stronger and more sustainable for the long term. I will continue to update you as decisions progress. All these changes have had to be make quicker than in an ideal scenario, but I know we can continue to work together and be on the other side of this a more sustainable organization,” Sharma’s letter to employees concluded.

On Wednesday morning, Courtney Bibo, Cottage Hospital director of community and staff relations, had no comment about the bankruptcy or the hospital losing Medicare and Medicaid payments.

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Can I File Another Bankruptcy If I Am Not Eligible For A Discharge Of Debts

You can file for bankruptcy again even if you are not eligible to have your debts discharged. Sometimes doing so is your best option.

Filing for bankruptcy generally puts an automatic stay on any legal action by your creditors. This means they cant come after you to collect any debts you owe until the proceedings are concluded. This can buy you valuable time to come up with a plan and figure out the best way to resolve your debts.

Learn About The Differences Between Chapter 11 And Chapter 13 Business Bankruptcies

Updated by Cara O’Neill, Attorney

For a small business in financial distress, bankruptcy might be the only viable option. If you need help keeping your company afloat, restructuring debt under Chapter 11 or Chapter 13 might be the life preserver needed to stay in business.

By contrast, if your business is closing, a “straight” or “liquidation” bankruptcy might be the better option. For help, see Chapter 7 Bankruptcy for Small Businesses or learn about the differences between Chapter 7 and Chapter 11 bankruptcy.

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Lease Or Executive Contract Debt

Chapter 11 permits you to accept or reject your leases and executive contracts. For example, imagine you are a hotel owner and previously contracted with a cleaning service for the next five years. You find you can now obtain similar services for half the price, thus increasing the profitability of the business. Chapter 11 will allow you to sever the contract with the current cleaning service. You may then ask the court to allow you to seek a new, more affordable service. As long as you can show that the new contract and corresponding service will contribute to the profitability of the business, the judge will authorize the new contract.

Another example would be if your company leased office space. That same office space may be leasing for twice as much since you originally signed the lease. The bankruptcy code requires you to affirm your intent to retain that lease within a certain number of days after filing or you are automatically deemed to have rejected it. Failure to act may cause you a great deal of time and money and the bankruptcy judge will be powerless to help you correct your mistake.

Can I Keep My Property During Chapter 11 Bankruptcy

Embattled PG& E To File For Chapter 11 Bankruptcy

Yes, youll likely get to keep your home during a Chapter 11 bankruptcy. But only up to a certain amount.

A Chapter 11 personal bankruptcy allows up to $1,184,200 in secured debt mortgage and car payments. It also allows $394,725 in unsecured debt such as credit cards.

Assets such as property can also be written down. For example, if you own a property worth $98,000 but owe $150,000 on the loan, the principal balance of the mortgage can be reduced to the value of the property. The new mortgage would be $98,000.

Chapter 11 also allows the interest rate on the loan to be reduced and repayment terms can be extended. That could drop your monthly mortgage payments.

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Complete The Bankruptcy Forms

The bankruptcy forms include at least 23 separate forms, totaling roughly 70 pages. The bankruptcy forms ask you about everything you make, spend, own, and owe. Youâll also include some bankruptcy basics, like what type of bankruptcy youâre filing under and whether a bankruptcy lawyer is helping you.

If you hire a lawyer, they will complete the forms for you based on the information you submit to their office. If you can’t afford to hire a lawyer but don’t feel comfortable completing the forms on your own, see if you’re eligible to use Upsolve’s free online bankruptcy service or schedule an appointment with a legal aid provider in your area.

Chapter 11 Vs Chapter 7

With a Chapter 7 bankruptcy, there is no reorganization plan or restructuring of debt to continue operations. Its a straight liquidation of assets in which a trustee is appointed to sell a persons non-essential assets.

Houses and cars are usually put up for sale. Among the items that can be protected are pensions, reasonable necessary clothing, household goods and jewelry up to a certain value.

The proceeds go to creditors and the filer is legally cleared of debt. Legal fees are usually not an issue, though there is a $245 filing fee.

Thats the good news. The bad news is your is wrecked and you will have a near-impossible time getting a loan at a reasonable interest rate.

» More about:Chapter 7 vs. Chapter 11 Bankruptcy

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Chapter 11 Proceedings: Pros And Cons

Chapter 11 cases are complex and expensive, which is the most significant disadvantage for small business owners. It’s also why Chapter 11 cases make up only a tiny percentage of bankruptcy cases filed. However, special procedures available through Chapter 11, Subdivision V can help lower costs for small businesses.

Important Chapter 11 advantages include:

  • The plan creates new contract terms between the debtor and creditors and can be as long as needed, which is helpful for a small business debtor who needs extended payment terms on real property mortgages or equipment loans.
  • If less than the full balance on a particular debt is to be paid in the plan, the debt discharge will occur at plan confirmation rather than after completion of the plan, unless the court approves a plan without creditor consensus in a Chapter 11, Subchapter V case.
  • Chapter 11 doesn’t require debtors to turn over their disposable income to a trustee. The “debtor in possession” remains in control of the business.
  • In Chapter 11, the appointment of a trustee to manage the case is the exception rather than the rule and usually appointed for gross mismanagement or fraud.

Also, small business debtors can take advantage of special provisions that help streamline Chapter 11 matters. You’ll qualify as a small business debtor under Chapter 11, Subchapter V if you’re an individual or entity who is:

For more information, see Chapter 11 Bankruptcy: An Overview.

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