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What Does Chapter 11 Bankruptcy Mean

Chapter 11 Filing Fees And Administrative Fees

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As of 2020, you will pay $571 to file a Chapter 11 bankruptcy. This is considered an administration fee.

If you ask to divide a joint case , you will pay another $571 in administration fees. Then, you will pay $1,167 to file the new motion with divided cases. It is $1,167 to reopen a dismissed case.

Features Of Chapter 11 Reorganization

Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the United States. It provides additional tools for debtors as well. Most importantly, 11 U.S.C. § 1108 empowers the trustee to operate the debtor’s business. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business.

Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business’s earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, creditors are stayed from any collection attempts or activities against the debtor in possession, and most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue. An example of proceedings that are not necessarily stayed automatically are family law proceedings against a spouse or parent. Further, creditors may file with the court seeking relief from the automatic stay.

All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed plan of reorganization complies with bankruptcy laws.

Speak To An Experienced Chapter 11 Bankruptcy Attorney Today

This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified chapter 11 bankruptcy lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local chapter 11 bankruptcy attorney to discuss your specific legal situation.

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Who Can File Chapter 7 Vs Chapter 11

An individual debtor can file under both Chapter 7 and Chapter 11 of the U.S. Bankruptcy Code as long as they meet the minimum eligibility requirements. That’s right – even though Chapter 11 bankruptcy is most often referred to in the context of a big business filing for bankruptcy protection, like General Motors, Sears, or most recently, Purdue Pharma, individuals can file Chapter 11 as well.

Corporations, partnerships, and other business entities can also file under both Chapter 7 or Chapter 11 of the Bankruptcy Code.

Are The Forms Different For A Chapter 7 Vs Chapter 11 Case

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The basic bankruptcy forms in a Chapter 7 vs. Chapter 11 are the same in both bankruptcy cases. The filing of a bankruptcy petition officially starts both types of bankruptcy.

Chapter 11 cases have additional forms that must be filed. A âplan of reorganizationâ and the related disclosure statements are two of the forms in a Chapter 11 case that is not in a Chapter 7 case.

The forms in a Chapter 11 case are more complicated than forms in a Chapter 7 case.

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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.

The Steps Involved In Chapter 11

  • The filing of a petition with the bankruptcy court where the company is incorporated.
  • Chapter 11 can be a voluntary filing, where companies seeking relief take the initiative for filing, or involuntary, where creditors can join hands to file against a defaulting company.
  • The defaulting company that has filed for Chapter 11 can run its business as the debtor-in-possession, or DIP, and usually no trustee is appointed. However, if fraud or incompetency is involved, the court usually appoints a trustee to run the company through the proceedings.
  • All significant decisions taken during the period should be approved by the bankruptcy court.
  • Stakeholders such as creditors and shareholders have the right to accept or oppose decisions that require the courts approval. The court hears their argument before making its decision in this regard.
  • The company is usually notified regarding the period within which it has to file the reorganization plan. This period usually ranges from four months to up to 18 months.

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What If The Company Fails To Finish Their Debt Restructuring Plan

A company must follow its debt restructuring plan, which allocates specific payment amounts to creditors. The company is following a court-ordered repayment plan. And when they fail to comply with that reorganization or their liabilities exceed their assets, they may opt to convert into Chapter 7 bankruptcy.

How Is A Chapter 11 Different From A Chapter 13

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Chapter 11 bankruptcy can be filed by individuals, married couples, corporations, partnerships, and other types of business entities. Chapter 13 bankruptcy can only be filed by individuals and married couples. Chapter 13 is designed for people who need bankruptcy protection, not businesses.

Under the Bankruptcy Code, Chapter 13 is an adjustment of debts of an individual with regular income. Chapter 13 bankruptcy requires a filer to have regular income to be able to make a monthly plan payment. On the other hand, Chapter 11 bankruptcy allows for a plan of reorganization or liquidation, and it isn’t always necessary for a Chapter 11 filer to have regular income.

Further, the Chapter 13 process is much more streamlined. The Bankruptcy Code requires a Chapter 13 plan to last 3 to 5 years depending on the filer’s income. A Chapter 11 bankruptcy is less structured and may last a shorter or longer time than a Chapter 13. Further, the contents of a Chapter 13 plan can be a lot less detailed than the contents required in a Chapter 11 plan. Also, Chapter 13 does not require the in-depth disclosure statement required in a Chapter 11 bankruptcy case.

Another way Chapter 11 is different from Chapter 13 is that a standing trustee administers all Chapter 13 cases. The Bankruptcy Code requires that a trustee be appointed to the case. Chapter 11 has no such requirement and allows the filer to act as debtor in possession, essentially filling the role of the trustee.

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Small Business Debt Reorganization Act Or Subchapter V Of Chapter 11 Bankruptcy

  • What is the Small Business Debt Reorganization Act ?
  • The Small Business Debt Reorganization Act of 2019 allows small business debtors the opportunity to reorganize their debt in a faster and more cost-effective manner than Chapter 11 bankruptcy, but with many of the same advantages. SBDRA allows companies to reorganize under Subchapter V of Chapter 11 bankruptcy.

  • Who qualifies as a small business debtor under SBDRA/Subchapter V?
  • A small business debtor can be a sole proprietor, corporation, or partnership that:

    • Conducts commercial or business activities, not including owning or operating real estate property.
    • Owes $2,725,625 or less in at the time of filing that is:
    • Noncontingent: The debtor is currently liable for this debt, not pending an event in the future.
    • Liquidated: The debt amount is specific and determinable.
    • Secured or unsecured: Secured debt is backed by collateral that is equal to the amount of the loan and may include things like mortgage and car loans. Unsecured debt may include credit card and vendor payments and is not backed by collateral.

    Under the Coronavirus Aid, Relief, and Economic Security Act of 2020, the debt limit for SBDRA was increased to $7,500,000, effective for one year beginning March 27, 2020.

  • How can a debtor choose to be treated as a small business debtor?
  • What are the advantages to being treated as a small business debtor under Subchapter V?
  • It is also faster to file for bankruptcy under Subchapter V for a multitude of reasons, including:

    Does Chapter 11 Bankruptcy Mean The End Of My Small Business

    Sometimes things just go wrong. In the business world, especially, failure doesnt always have a direct cause, and its for that reason that bankruptcy exists.

    While its true that some bankrupt companies decide to fold their hand, not all businesses that go through bankruptcy will have to close their doors. In fact, many businesses that go through Chapter 11 bankruptcy choose to do so specifically because they plan to keep things running.

    Heres what you should know about Chapter 11 bankruptcy:

    The Purpose of Chapter 11 Bankruptcy

    When businesses run into financial trouble, they will often seek help from the courts through Chapter 11 Bankruptcy. This type of bankruptcy allows debtors to restructure their finances so that they can regain a profitable standing while continuing to operate. Businesses that have filed for Chapter 11 bankruptcy also have the option to sell off some of their assets to pay off some of the debt they owe.

    Why File for Chapter 11 Bankruptcy

    If you own your small business as part of a partnership, corporation, or LLC, then Chapter 11 is your only option if you want to file for bankruptcy.

    While both major corporations and small businesses both use Chapter 11 to restructure debt to stay in business, there are a few special provisions that small businesses can take advantage of to help expedite the process .

    How to Start the Chapter 11 Process

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    Doing Business With A Company In Chapter 11 Bankruptcy

    Business insolvency is on the rise, enhancing the threat that some of your current clients could declare bankruptcy this year. In fact, in 2020, business failures are set to rise for the fourth consecutive year.

    Under Chapter 11 bankruptcy, a company can reorganize and create a plan to repay creditors over time. The company can continue to operate, but financial decisions must be approved by a bankruptcy court. That means that your cash flow can be seriously impacted: that clients past-due invoices may eventually be paid, may eventually be paid but not paid-in-full, or may never be paid. can help you avert that cash-flow problem.

    In a Chapter 11 bankruptcy, the company that has filed Chapter 11 is allowed to continue to operate under the supervision of the bankruptcy court and pursuant to an approved plan of reorganization. Unless you have a contract with the client that states otherwise, you can still choose to do business with a company in Chapter 11 bankruptcy.

    Why Did Enron File For Chapter 11 Bankruptcy

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    The Houston-based energy company filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York Sunday afternoon. The company also filed suit against Dynegy , its onetime crosstown rival, for Dynegys wrongful termination of its proposed merger with Enron, seeking at least $10 billion in damages.

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    Recovery Rates For Creditors

    In bankruptcy, claims are grouped according to similarity . These groupings are based upon various factors, such as identity of the obligor , collateral interests , senior vs. subordinated, post-petition vs. pre-petition, claims entitled to certain priorities , and so forth. Interests are also grouped in the same manner, with preferred stock and common stock having their own classes. Generally, a plan will classify claim holders as secured creditors, unsecured creditors entitled to priority, general unsecured creditors, and equity security holders. A plan of reorganization does not have to provide for the full payment of all prepetition bankruptcy debts . Certain classes of creditors may be deemed impaired , while other classes may be deemed unimpaired .

    A plan of reorganization does not have to provide for the full payment of all prepetition bankruptcy debts . Certain classes of creditors may be deemed impaired , while other classes may be deemed unimpaired .

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    What Happens To Stock When A Company Goes Bankrupt

    While the firm is in Chapter 11, its stock will still have some value, though the price will likely plummet and the stock will stop paying dividends. It may be delisted on the major exchanges, but over-the-counter trading may still occur. When a company is listed on the pink sheets or Over-the-Counter Bulletin Board , the letter “Q” is added to the end of the company’s ticker symbol to indicate that it is undergoing bankruptcy proceedings.

    If a company manages to emerge from Chapter 11 bankruptcy stronger than before, current shareholders may or may not benefit from the turnaround, as old stock may get canceled during the bankruptcy process, and new shares issued.

    When a corporation is on the verge of bankruptcy, its stock value reflects the risk of Chapter 11 becoming Chapter 7. For example, a company traded at $50 may trade at $2 per share due to bankruptcy speculation. After filing Chapter 11, the firm’s stock price may fall to $0.10. This value is composed of the potential income that shareholders may receive after liquidation and the possibility that the firm may restructure and begin to operate successfully in the future. Private investors can buy and sell these 10-cent shares in the OTC market. The actual value does not reach zero unless the probability of restructuring is so low that a Chapter 7 filing is sure to follow or if the company does indeed end up in Chapter 7.

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    What Is Chapter 11 And What Is The Canadian Equivalent

    Bankruptcy seeks the dual purpose of benefiting the debtor as well as the creditor by finding a happy medium where the debtor can comfortably meet their monthly obligation and the creditors recoup their investment.

    U.S. Laws

    In the U.S. there are two basic types of bankruptcy proceedings under the bankruptcy law contained in Title 11 of the United States Code. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Bankruptcy proceedings under Chapter 11 involves the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under some Chapter 11 proceedings, a trustee is appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors.

    After a successful Chapter 11, the business can continue with a restructured debt load and operate more efficiently than it previously did. In doing so, it can preserve jobs and assets. Repayment of debts is made from future profits, sale of some assets, mergers or recapitalization.

    Canadian Laws

    • Funeral expenses of the bankrupt, if applicable
    • Trustees and legal expenses of the bankruptcy
    • Superintendents levy
    • $2,000 worth of salaries or wages due to employees
    • Family support payments
    • Rent due
    • Unsecured creditors.

    The Court Does Protect Shareholders

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    Under Chapter 11, the court also creates a committee that is in charge of representing all shareholders and creditors of the company to ensure a fair reorganization. The company, alongside this committee, must then create a reorganization plan that the court approves. Also, creditors, bondholders, and shareholders can have a say in the reorganization plan especially contesting it if they feel it does not address them equally.

    Bondholders of a company in reorganization will not receive coupon payments or repayments. The companys bonds are also downgraded under Chapter 11 to speculative-grade bonds. Most investors will not purchase these bonds, and if they are willing to take the risk, they will only do so after a substantial discount is applied.

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    Are There Advantages To Filing Chapter 11

    The biggest advantage is that the entity, usually a business, can continue operations while going through the reorganization process. This allows them to generate cash flow that can aid in repayment process. The court also issues an order that keeps creditors at bay. Most creditors are receptive to Chapter 11 as they stand to recoup more, if not all, of their money over the course of the repayment plan.

    Pros Of Filing Chapter 11 Bankruptcy

    As previously stated, this type of bankruptcy gives the debtor a chance to reorganize debts. After filing a Chapter 11, the bankruptcy court issues an automatic stay that keeps creditors from attempting to collect repayment from the business. While the automatic stay is in place, the debtor works on a repayment plan.

    A chapter 13 bankruptcy lawyer can help you make a plan that typically includes reduced amounts owed or reduced interest rates.

    Meamnwhile, the repayment plan under Chapter 11 is called a reorganization plan. The businesss goal is to stay profitable while paying back debts, so they try to renegotiate contracts, leases, or other debts in order to get amounts reduced or discharged. Creditors are generally receptive to the repayment plan because they often get a payment plan that is more favorable than what they would get under Chapter 7.

    Under the reorganization plan, creditors are placed in different classes with different priorities. Those that are the first priority would include state or federal tax agencies and unpaid employee wages or stock options. Each secured creditor is placed in its own class, and unsecured creditors are collectively placed in one class. Once the plan is confirmed by the court, the debtor is required to make all the payments to creditors as outlined in the reorganization plan.

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