Chapter 7 Title 11 United States Code
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Chapter 7 of Title 11 of the United States Code governs the process of liquidation under the bankruptcy laws of the United States, in contrast to Chapters 11 and 13, which govern the process of reorganization of a debtor. Chapter 7 is the most common form of bankruptcy in the United States.
Alternatives To Chapter 7
Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to catch up past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. §;707.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
Is Chapter 11 Your Best Bankruptcy Choice
When possible, most debtors elect to file for bankruptcy under Chapter 7 or 13 to avoid the time, cost, and risk involved in Chapter 11 proceedings. So your first step should be to learn about personal bankruptcy, as well as bankruptcy options for small businesses.
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Who Can File For Bankruptcy
Any partnerships, sole proprietorships, LLCs, or business entities can file for;Chapter 11 bankruptcy. It could be a larger corporation or a small business. When you file the petition for Chapter 11 bankruptcy, the judge takes into consideration the input from creditors and then confirms the plan if it satisfies the legal;requirements.;;
The Role Of An Examiner
The appointment of an examiner in a chapter 11 case is rare. The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. §;1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or help the parties negotiate, or review the debtor’s schedules to determine whether some of the claims are improperly categorized. Sometimes, the examiner may be directed to determine if objections to any proofs of claim should be filed or whether causes of action have sufficient merit so that further legal action should be taken. The examiner may not subsequently serve as a trustee in the case. 11 U.S.C. §;321.
Examiners may not be appointed in subchapter V cases. 11 U.S.C. §;1181 .
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Chapter Eleven Bankruptcy: An Overview
;;;;;;;;;;; Chapter 11 is the âreorganizationâmodel for bankruptcy. Well-known Americanretailers such as Toys âRâ Us and Kmart, as well as a Major League Baseballfranchise, the Texas Rangers, have filed for it. As a CEO, President DonaldTrump decided that three of his Atlantic City hotel-casinos should file for it.
;;;;;;;;;;; Introduced in 1978, a Chapter 11 proceedingunder the U.S. Bankruptcy Code allows a company or individual to declarebankruptcy, reduce debt and reorganize without having to shut down andliquidate to satisfy debts. Chapter 11 provides a debtor with breathing room. Highprofile examples of Chapter 11 filers include large companies, includingcorporate giants Macyâs, General Motors, United Airlines and Kodak, but Chapter11 is not only for entities like these. In fact, nearly a third ofChapter 11 filers are individuals.
;;;;;;;;;;; Now letâs compare Chapter 7 toChapter 11. Chapter 7, the most common form of bankruptcy in the United States,is a liquidation. The bankruptcy court appoints a trustee to sell a debtorâsassets and distribute the proceeds to creditors. Chapter 11 is a reorganizationand a debtor filing for Chapter 11 can protect assets and business operationsfrom disruption due to collection activities such as foreclosures,garnishments, lawsuits, and repossession while still operating business asusual. ;
Initiation of a Chapter 11Proceeding
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After the Filing
Protecting The Debtors Estate
On the petition date, all of the assets of the debtor become part of that debtors estate. Possession is irrelevant and assets may be anywhere, including in the possession of creditors. The Bankruptcy Code contains multiple provisions to preserve value for the debtors estate.
As its name suggests, an automatic stay arises automatically on the petition date. The automatic stay protects a debtor from collection efforts by creditors in the postpetition period. It is one of the primary reasons why debtors file for bankruptcy. To avoid a free-for-all among creditors, prevent favoritism, and allow a fair resolution of disputes, the automatic stay forbids a debtor from paying any creditors for prepetition claims, debts, or liabilities. In many cases, such prepetition liabilities will not be paid until the debtor emerges from bankruptcy.
Willful violation of the automatic stay is treated very seriously by Bankruptcy Courts. Willful does not refer to whether the creditor knew that its action violated the automatic stay; rather, willful means that the creditor knowingly took the action, meaning that the action itself was not accidental. In particular, creditors should be careful not to implement setoffsoffsetting debts due from a customer with amounts due to that customerto avoid inadvertently violating the automatic stay. In general, it is better to ask permission from the Bankruptcy Court than to seek forgiveness later.
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A Chapter 11 bankruptcy is a bankruptcy case of reorganization filed pursuant to Chapter 11 of the United States Bankruptcy Code. Uniquely, individuals, corporations, small businesses and other business entities may file Chapter 11. The primary purpose of a Chapter 11 bankruptcy is to give business entities and individuals with large amounts of debt time to reorganize their financial affairs. Chapter 11 reorganizations may be voluntary, filed by the debtor, or involuntary, filed by creditors of a potential debtor.
The Usual Parties
Understanding the parties to a Chapter 11 bankruptcy case and the role each plays throughout the case is essential. Every case will feature a debtor, creditors and a United States Trustee or Bankruptcy Administrator, but the average Chapter 11 case may feature any combination of the remaining parties.
Debtor in Possession : All bankruptcies have debtors, but Chapter 11 bankruptcies offer a unique opportunity for the debtor to remain in control of its assets and continue to operate in the ordinary course of business. See, 11 U.S.C. §§;1101; Smart Code. The debtor in possession also performs many of the duties traditionally performed by a case trustee. Court Opinions; see, e.g., Point of Law . The debtor in possession is commonly called the DIP.
Journey Through Chapter 11
‘chapter 11 Bankruptcy’ Is Explained In Detail And With Examples In The Corporate Finance Edition Of The Herold Financial Dictionary Which You Can Get From Amazon In Ebook Or Paperback Edition
Chapter 11 Bankruptcy proves to be a specific type of bankruptcy. This kind has to do with the business assets, debts, and affairs being reorganized. The business reorganization filing was named for the Section 11 of the United States Bankruptcy Code. Corporations commonly file it that need some time to rearrange the terms of their debts and their business operations. It gives them a fresh start on repaying their debt obligations. Naturally the indebted company will have to stick to the terms of the reorganization plan. This proves to be the most highly complex type of bankruptcy filing possible. Companies have been advised to only entertain it once they have contemplated their other options and analyzed the repercussions of such a filing.
This Chapter 11 bankruptcy rarely makes the news unless it is a nationally known or famous corporation which is filing. Among the major corporations that have filed such a Chapter 11 bankruptcy are United Airlines, General Motors, K-Mart, and Lehman Brothers. The first three successfully emerged from it and became as great or stronger than they were before falling into hard times financially. In reality, the vast majority of these cases are unknown to the general public. As an example, in the year 2010, nearly 14,000 separate corporations filed for Chapter 11.
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What Is The First Step In Filing For Bankruptcy
When you decide to move forward with your Chapter 11 bankruptcy, the next step is to file a petition with the Bankruptcy Court in your state. The petition includes all your property and debts, as well as liabilities and assets.;;
Given the complexity involved in filing Chapter 11 bankruptcy, we recommend exploring your options for;Chapter 11 business bankruptcy attorneys. With a bankruptcy situation,;what;you dont know really can negatively impact your future. So, its best to find an attorney who has your best interests at heart.;;
How Do You File Chapter 7 Bankruptcy
You can probably complete the process within six months. Youll have to follow several steps.
You must complete pre-file bankruptcy counseling from a qualified nonprofit credit counseling agency within 180 days before filing.
Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.
Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.
Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.
Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.
Education course: Before your case is discharged, youll have to take a financial education course from a qualified nonprofit credit counseling agency.
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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.
Chapter 11 Bankruptcy Vs Chapter 7
Chapter 11 bankruptcy allows a business to continue its operations while paying off its debts. This is in contrast to chapter 7 bankruptcy, also known as liquidation. In chapter 7, a business or individual sells off assets and uses the proceeds to pay debts. For a business, however, this often means ceasing operations.
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Who Can File A Plan
The debtor has a 120-day period during which it has an exclusive right to file a plan. 11 U.S.C. §;1121. This exclusivity period may be extended or reduced by the court. But in no event may the exclusivity period, including all extensions, be longer than 18 months. 11 U.S.C. §;1121. After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. The U.S. trustee may not file a plan. 11 U.S.C. §;307.
A chapter 11 case may continue for many years unless the court, the U.S. trustee, the committee, or another party in interest acts to ensure the case’s timely resolution. The creditors’ right to file a competing plan provides incentive for the debtor to file a plan within the exclusivity period and acts as a check on excessive delay in the case.
Only the debtor may file a plan in a subchapter V case. 11 U.S.C. §;1189.
Acceptance Of The Plan Of Reorganization
As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed . The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. §;1121. The court may extend or reduce this acceptance exclusive period for cause. 11 U.S.C. §;1121. In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.
If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors’ committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 U.S.C. §;1106. A proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and solicitation.
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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.
Official Committee Of Unsecured Creditors
Vendors should also evaluate whether it is beneficial for them to serve on an Official Committee of Unsecured Creditors . The UCC, which is often called the watchdog of the bankruptcy process, can play an integral part in shaping the course of a particular case. The UCC represents a wide variety of unsecured creditors and is a key driving force in determining the direction and success of a debtors bankruptcy case. The US Trustee appoints a diverse mix of volunteers from among the debtors top 20 largest creditors to serve on the UCC.
The debtor pays for lawyers and advisors to advise the UCC. While individual unsecured creditors have rights to be heard in the Bankruptcy Court, they must pay for their own attorneys. The Bankruptcy Code authorizes the creation of a UCC to acknowledge that it would be unwieldy and costly for hundreds or thousands of unsecured creditors to file separate objections to the debtors motions, appear before the Bankruptcy Court during hearings, and negotiate a plan of reorganization.
Instead, on behalf of all unsecured creditors, the UCC negotiates with the debtor and its secured lenders to create a plan of reorganization to exit Chapter 11. Although the UCC may recommend that unsecured creditors vote to approve or reject the debtors proposed plan, each unsecured creditor makes its own independent decision about voting.
Advantages & Disadvantages of Voluntary UCC Service for Vendors
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